We reiterate our ?buy? rating on IndusInd Bank on loan growth, Casa momentum and stable credit costs. We increase our target price to R580 from R520 as we increase our earnings estimates and roll forward book value to one-year forward.
Our target price implies 3.3x average FY14f/FY15f ABV and 18.6x average FY14f/FY15f EPS for FY14f adjusted book value (ABV) RoE of 18.6%. The stock currently trades at 2.8x our average FY14f/FY15f ABV of R178 and 15.7x average FY14f/FY15f EPS of R31.6.
In our opinion, the stock will continue to benefit from the momentum in the Casa deposit base built up over the past few quarters. We expect the bank to inch up its Casa ratio to 33% by FY14f (from 30% currently), driven by relatively stronger growth in savings deposits than current account deposits.
We think the bank’s expanding branch network, increasing branch density, increasing ticket size of SA deposits and deposit productivity should help drive this growth. Backed by Casa momentum, we estimate IndusInd Bank to clock loan growth of 27.3% y-o-y in FY14f, much ahead of the expected system average growth in FY14.
Casa momentum should help the bank maintain its margins in the year ahead. Another positive to note is despite a macro-related slowdown in the CV cycle, the bank has done well to contain its credit costs at 55 bps in FY13 versus 47 bps in FY12. We are budgeting in LLPs of 60 bps for FY14f.