Emkay Global Financial's report on Indusind Bank
Despite lower margins, higher opex and elevated provisions, IIB reported an in-line PAT of Rs10.2bn (up 99% yoy), mainly due to healthy fee growth. GNPA formation (up 21bps qoq to 2.9%) was largely in line with larger peers, while restructuring was below management’s guidance (up 60bps qoq to 2.7%). As per management, the bulk of the retail/SME stress formation from the second Covid wave is behind, and normalization should start from H2. The bank carries a healthy Covid contingent provision of Rs20bn (incl. Rs12bn for restructuring)/1% of loans. Its specific provision stands at Rs1.5bn toward the risky telecom exposure (Vodafone: Rs34bn). Deposit growth (26% yoy) far outpaced credit growth (6% yoy), hurting margins in Q1. However, steady retailization of assets (55% vs. 52%)/liabilities (50% vs. 37%) and credit growth acceleration with a better grip on asset quality should drive NIMs up. This, coupled with moderating LLP, should increase RoA/RoE to 1.7-1.9%/15-16% over FY23-24E.
Outlook
We believe a resurgent IndusInd with a better liability profile, higher retail orientation, and risk-guards in place should deliver sustainably higher return ratios, providing a good turnaround story to play on. Retain Buy with a revised TP of Rs1,375 (2x Jun’23E ABV).
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