ICICI Direct is bullish on IndusInd Bank has recommended buy rating on the stock with a target price of Rs 2050 in its research report dated April 20, 2018.
ICICI Direct's research report on IndusInd Bank
IndusInd Bank reported a healthy quarter operationally with 26.8% PAT growth YoY. However, higher slippage, divergence acted as blip Led by corporate segment, slippages came in higher at Rs 860 crore. One large account from gems & jewellery sector and another related to toll road project slipped during the quarter. However, headline GNPA ratio remained largely under control at 1.17%; up 1 bps QoQ As per RBI supervision, divergence is reported at Rs 1350 crore. However, adjusting for loan to a cement based corporate whose merger got completed (Rs 518 crore), loans repaid on time (Rs 257.8 crore), ARC sale (Rs 118.8 crore) and account already classified as NPA (Rs 236 crore), the net impact is limited to ~Rs 185 crore Advances growth remained healthy at ~28% YoY. Improvement in CV segment with ~27% YoY growth remained the highlight.
Outlook
IIB has continued to deliver a strong performance. Consistent return ratios of ~17-18% RoE & ~2% RoA provide comfort. Improving CV cycle & consequent rise in high yielding vehicle portfolio augur well for future. Superior growth, strong liability franchise, stable margins and steady credit costs are seen enabling earnings growth at 27% CAGR in FY18-20E. The bank has announced an all-share deal to buy Bharat Financial (BFIL). This merger is not expected to impact BV (impact on standalone BV in FY18E by just Rs 8/share (Rs 390) while warrant issuance to promoter can add ~Rs 25/share (Rs 415)). Hence, we continue to remain positive on fundamentals and upgrade our target price to Rs 2050 (earlier 1920), valuing the stock at ~3.87x FY20E ABV. We maintain our BUY rating.
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