IndusInd is among our top picks in sector with a target price of R880 based on 3.6x Sep-16 adjusted PB. The bank has raised return on assets (ROA) from lows of 0.3% to 1.8% led by improving deposit franchise, higher cross-sells and lower credit costs. Over FY4-17, we expect it to deliver 26% CAGR in profits led by strengthening of deposit franchise, an uptick in CV-cycle and wider product suite.
The management highlighted that new product launches have been the key to its growth in retail as well SME segments. While new loan products will help to reduce dependence on auto loans from 37% now, new payment platforms will help to win market share in float deposits and fees across retail, corporate and government clients.
The management plans to focus on targeted geographies, where the bank will target a 5% share. They believe a higher share in key markets will help to strengthen the brand, attain critical size of customers and dominate pricing. It is interesting to note that even Wells Fargo has also identified such a ‘sweet-spots’ between market share in branches and customers that optimises profitability of branches.
We believe digital platforms will drive 20% of bank profits by FY20. IndusInd has launched services like video-branch, ‘my-account-my-number’ and choice of denomination at ATMs to strengthen the brand. It will leverage social/ online platforms and invest in Big-Data analytics to identify customer needs to customise products; management is also open to collaborations and acquisitions in these areas.
CLSA