Buy IndusInd Bank shares as revenue growth strong: Kotak Institutional Equities

Updated: Oct 16 2013, 16:25pm hrs
We maintain buy on Indusind Bank and increase the target price to Rs 470 (from Rs 430), thereby valuing the bank at one-year forward 2.7x P/B and 18x EPS.

We maintain our positive view on the bank, noting its key strength in the highly profitable retail business, strong tier-1 ratio, healthy fee income business and execution on the liability side.

The bank's Q2FY14 result was marked by a strong performance with earnings growth of 32% y-o-y, leading to 35% revenue growth. Despite strong headwinds on the funding side, IndusInd Bank navigated the quarter quite well with margins declining only 7 bps q-o-q through a combination of base rate hike, aggressive refinancing of PSL portfolio and foreign currency borrowing.

Loan growth trend was broadly maintained (24% y-o-y) though retail growth was slower (18% y-o-y). Gross NPLs remained broadly stable at 1.1% of loans with limited stress across product segments. Loan growth stays ahead of industry, led by LAP and corporate loans.

Overall loans grew 24% y-o-y led by growth in corporate advances (SME and large corporate segment), 31% y-o-y, and LAP/home loans which grew 1.14x. Moderation in growth in CV loans was conspicuous with growth in CV loans at 8% y-o-y and small CVs/three-wheelers at 2% y-o-y. Overall loans to vehicle segment grew 14% y-o-y, cushioned by growth in loans to cars at 31% y-o-y, UVs at 25% and two-wheelers at 29% y-o-y. Loan mix between retail and non-retail loans remained unchanged at 49:51.

- Kotak Institutional Equities