indusind bank-2qfy14 result update -15 october 2013 longtermgrp++ nb

7/27/2019 IndusInd Bank-2QFY14 Result Update -15 October 2013 Longtermgrp++ NB

1/4

Please refer to t he disclaimer towards the end of the document.

Institutional Equities

2QFY14ResultU

pdate

IndusInd Bank

Reuters: INBK.BO; Bloomberg: IIB IN

Earnings Above Expectations; TP Cut, Retain HoldIndusInd Bank posted net earnings of Rs3.3bn for 2QFY14 aided by a 37.3%YoY growth in net interest income (NII), loan book growth of 24.2% YoY andinnovative interpretation of the Reserve Bank of India (RBI) guidelines onmark-to-market losses by providing only Rs163mn (in place of Rs382mn/quarter for the remaining three quarters of FY14). We believe that given thecurrent weak macro-economic environment, the business outlook remainschallenging for the bank but the reporting of lower non-performing assets(NPAs) indicates its immunity to the broader economic slowdown, which isquite strange. Factoring in these concerns we have revised upwards ourprovisioning estimates for FY14/FY15 by 32.7%/39.6%, respectively, and cutour earnings estimates for FY14/FY15 by 5.1% and 4.9%, respectively.We havecut our target price on the stock to Rs445 from Rs450 earlier, but retained ourHold rating on it.

Operational performance: IndusInd Bank posted 2QFY14 earnings of Rs3,302mn,up 31.9% YoY but down 1.4% QoQ, aided by YoY growth of 37.3% in NII, which wasabove our net profit estimate of Rs3,161mn by 4.5% and Bloomberg consensusestimate by 7.3%. It reported interest income growth of 16.8% YoY and 5.6% QoQ,while interest costs grew 8.2% YoY and 7.0% QoQ to fuel NII growth. NII showed adeviation of 6.6% from our estimate of Rs6,565mn. The bank reported a growth of30% YoY, but a decline of 11.4% QoQ in non-interest income at Rs4,167mn versus

our estimate of Rs4,159mn. Core fee income grew 32% YoY and 11% QoQ.Overheads rose 28.8% YoY and 4.0% QoQ at Rs5,288mn.

Margins slip sequentially: IndusInd Bank posted a decline of 7bps sequentially inmargins at 3.65% in 2QFY14 compared to 3.25% in 2QFY13. A 21bps expansion incost of funds and 11bps improvement in yields on advances contained the decline inmargins. While the bank maintained less volatility in margins, with a movement of10bps either way from the current levels, we have factored in margins at 3.4%-3.5%going forward. However, the bank has done well by tweaking its borrowings in orderto have a capped impact on margins.

HOLD

Sector: Banking

CMP: Rs428

Target Price: Rs445

Upside: 4%

Hemindra [email protected]+91-22-3926 8017

Manuj [email protected]+91-22-3926 8114

Key Data

Current Shares O/S (mn) 524.2

Mkt Cap (Rsbn/US$bn) 224.1/3.6

52 Wk H / L (Rs) 532/312

Daily Vol. (3M NSE Avg.) 3,754,565

rice Performance (%)

1 M 6 M 1 Yr

IndusInd Bank 6.8 6.7 16.9

Nifty Index 4.5 10.6 7.7

Source: Bloomberg

Y/E March (Rsmn) 2QFY13 1QFY14 2QFY14 YoY (%) QoQ (%) 1HFY13 1HFY14 YoY (%)

Interest on credit 13,819 15,116 16,113 16.6 6.6 26,940 31,229 15.9

Interest on investments 3,238 3,674 3,655 12.9 (0.5) 6,267 7,328 16.9Interest on inter-bank funds 180 330 416 131.3 26.1 347 747 115.4

Interest income 17,279 19,122 20,186 16.8 5.6 33,599 39,308 17.0

Interest expenses (12,182) (12,327) (13,186) 8.2 7.0 (23,661) (25,514) 7.8

Net interest income 5,097 6,795 6,999 37.3 3.0 9,938 13,794 38.8

Total other operating income 3,205 4,706 4,167 30.0 (11.4) 6,393 8,873 38.8

Total income 8,302 11,501 11,167 34.5 (2.9) 16,331 22,668 38.8

Staff expenses (1,621) (1,936) (2,020) 24.6 4.3 (3,147) (3,956) 25.7

Total overheads (2,483) (3,149) (3,268) 31.6 3.8 (4,946) (6,417) 29.7

Profit before provisions 4,198 6,416 5,879 40.0 (8.4) 8,238 12,295 49.2

Income tax (1,205) (1,747) (1,688) 40.1 (3.4) (2,348) (3,435) 46.3

Bad debt provisions (490) (1,321) (889) 81.3 (32.7) (1,025) (2,209) 115.5

Total provisions (1,695) (3,068) (2,577) 52.0 (16.0) (3,373) (5,645) 67.4

Net profit 2,503 3,348 3,302 31.9 (1.4) 4,866 6,651 36.7

EPS (Rs) 4.8 6.4 6.3 - - 9.3 12.7 -

Source: Company, Nirmal Bang Institutional Equities Research

15 October 2013


2/4


2 IndusInd Bank

Exhibit 1: Financial summary

Y/E March (Rsmn) FY11 FY12 FY13 FY14E FY15E

Total income 20,902 27,160 35,958 45,357 55,969

Profit before provisions 10,817 13,730 18,395 22,779 27,483

NIM (%) 3.6 3.4 3.5 3.4 3.5

Net profit 5,773 8,026 10,612 12,651 15,823

EPS (Rs) 12.4 17.2 20.3 24.2 30.3

EPS growth (%) 45.2 38.5 18.3 19.2 25.1

PE (x) 34.5 24.9 21.1 17.7 14.1

Price/book value (x) 5.2 4.5 3.0 2.7 2.3

Price/adjusted book value (x) 5.4 4.7 3.2 2.8 2.4

Dividend yield (%) 0.5 0.5 0.7 0.8 0.8

Cost-to-income (%) 48.2 49.4 48.8 49.8 50.9

RoA (%) 1.4 1.6 1.6 1.6 1.6

RoE (%) 17.9 18.4 17.4 15.7 17.1

Tier-1 capital (%) 12.3 11.2 13.8 13.4 12.7

Source: Company, Nirmal Bang Institutional Equities Research

Asset quality remains stable

While there were apprehensions that IndusInd Banks commercial vehicle (CV) loan segment would witnessstress as some other major CV financiers faced problems, the bank has surprisingly performed well byreporting an improvement in asset quality of this segment with gross non-performing assets (GNPAs) and netnon-performing assets (NNPAs) at 1.08% and 0.40% respectively, compared to GNPAs and NNPAs at 1.17%and 0.52%, respectively, in 1QFY14.While we remain sceptical, the management sounded confident on thisfront for the coming quarters. While the stress was evident in the two-wheeler and LAP(Loan against property)portfolio, the asset quality remained stable in all other consumer finance segments. For 2QFY14, IndusIndBank reported GNPA growth of 33.4% YoY and 8.1% QoQ at Rs5,464mn against our estimate of Rs5,407mn,and NNPA decline of 4.4% YoY but a growth of 7.8% QoQ at Rs1,092mn against our estimate of Rs1,356mn.Consequently, GNPAs and NNPAs in percentage terms for the quarter stood at 1.11% and 0.22%,

respectively, against 1.03% and 0.29%, respectively, during the corresponding quarter a year ago. Goingforward, we expect 34.1% and 33.7% CAGRs in GNPAs and NNPAs respectively, over FY13-FY15E.Restructured loan book as of end-2QFY14 deteriorated marginally to 0.31% of gross advances from 0.28% in1QFY14.

Strong loan book growth

IndusInd Bank reported balance sheet expansion of 24.8% YoY, led by loan book growth of 24.2% YoY anddeposit growth of 11.1% YoY. Borrowings witnessed a growth of 107.5% YoY on account of higher refinancingand foreign exchange borrowings. Loan mix of its advances book, comprising consumer finance and corporateloans, remained skewed in the ratio of 49.4:50.6. Low-cost deposits for the quarter stood at 31.8% aided bystrong traction in savings accounts.

Valuation and outlookAt the current market price, IndusInd Bank stock trades at 2.7x FY14E BV and 2.8x FY14E ABV. We believethat given the current weak macro-economic environment, the business outlook remains challenging for thebank but its sustained reporting of lower NPAs indicates immunity to the broader economic slowdown, which isquite strange. Factoring in these concerns, we have revised upwards our provisioning estimates forFY14/FY15 by 32.7%/39.6% respectively and cut our earnings estimates for FY14/FY15 by 5.1% and 4.9%,respectively. Consequently, our target price stands marginally reduced to Rs445 from Rs450 earlier. We haveretained our Hold rating on the stock.


3/4


3 IndusInd Bank

Conference call takeaways

Cost of borrowings and deposits went up during the quarter. While the management did well in containingthe decline in margins at 3.65%, recourse to refinancing close to Rs30bn (blended cost at 7.0% with noSLR or Statutory Liquidity Ratio requirement) and foreign currency borrowings (blended cost at 7.5%)came in handy. The bank expects to make the optimum use of alternate channels, with least exposure tothe MSF or Marginal Standing Facility window going forward.

Cost of deposits was flat in 2QFY14, largely on account of traction in savings accounts and lower re-pricingof deposits.

Trading profit stood at Rs242mn compared to Rs1,045mn in 1QFY13 as the bank sold close to 50% of itsG-secs, while the remaining has been provided for.

The bank reported deposit growth of 11.1% YoY and a decline of 4.7% QoQ. The sequential decline hasbeen attributed to the funding mix.

The bank expects to bring down its cost-to-income ratio to 45.0% from 47.4% currently. The bank expects to open 625 branches by the end of FY14. Corporate bond book of the bank stood at Rs8,000mn. Mark-to-market losses have been equally divided into seven quarters. The management has given guidance on keeping the banks core fee income growth intact over loan book

growth going forward.

Wholesale deposits to total funding ratio stood at 35%-36%, while the ratio of wholesale deposits to totaldeposits stood at 45%.

The bank has sold loans close to Rs16bn in 2QFY14 compared to Rs20bn in 1QFY14. The banks investment banking revenue, up 101% YoY and 32% QoQ at Rs658mn, is completely on the

debt side.

The bank has sold close to Rs250mn of its loans to an ARC (asset reconstruction company). Currently, itholds close to Rs850mn of security receipts.

Rating trackDate Rating Market price (Rs) Target price (Rs)

21 August 2012 Buy 333 383

4 October 2012 Hold 370 383

11 October 2012 Hold 358 383

4 December 2012 Buy 421 510

7 January 2013 Buy 431 510

9 April 2013 Buy 395 51022 April 2013 Hold 450 510

7 October 2013 Hold 396 45014 October 2013 Hold 428 445


4/4


4 IndusInd Bank

Disclaimer

Stock Ratings Absolute Returns

BUY > 15%

HOLD 0-15%

SELL < 0%

This report is published by Nirmal Bangs Institutional Equities Research desk. Nirmal Bang has other business units with ind ependent research teams separated byChinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorisedrecipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general informationfor the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities.

We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historicalinformation, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may besubject to change from time to time without notice.

Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients ofthis material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons

including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/sfrom any inadvertent error in the information contained, views and opinions expressed in this publication.

Access our reports on Bloomberg Type NBIE Team Details:

Name Email Id Direct Line

Rahul Arora CEO [email protected] +91 22 3926 8098 / 99

Hemindra Hazari Head of Research [email protected] +91 22 3926 8017 / 18

Sales and Dealing:

Neha Grover AVP Sales [email protected] +91 22 3926 8093

Ravi Jagtiani Dealing Desk [email protected] +91 22 3926 8230, +91 22 6636 8833

Pradeep Kasat Dealing Desk [email protected] +91 22 3926 8100/8101, +91 22 6636 8831

Michael Pillai Dealing Desk [email protected] +91 22 3926 8102/8103, +91 22 6636 8830

Umesh Bharadia Dealing Desk [email protected] +91-22-39268226

Nirmal Bang Equities Pvt. Ltd.Correspondence Address

B-2, 301/302, Marathon Innova,

Nr. Peninsula Corporate Park

Lower Parel (W), Mumbai-400013.

Board No. : 91 22 3926 8000/1Fax. : 022 3926 8010

indusind bank-2qfy14 result update -15 october 2013 longtermgrp++ nb

Documents