Maintain ‘buy’ on IndusInd Bank (IIB) with target price of R1,005 per share valuing the stock at 3.6x FY17e price-to-adjusted book value...
Maintain ‘buy’ on IndusInd Bank (IIB) with target price of R1,005 per share valuing the stock at 3.6x FY17e price-to-adjusted book value (P/ABV). Credit growth of 25% plus, improved liability franchise, superior fee income, stable credit cost and new business initiatives will aid IIB post superior return ratios (RoA and RoE of 2% and 18-20%). The stock is trading at 3.3x FY17e ABV.
IIB reported in-line Q4FY15 PAT of R490 crore (up 25% y-o-y). Loan mix tilted further towards lower yielding corporate book, thus restricting NIMs improvement, leading to below trend NII growth (up 18% y-o-y); Core fee income gained traction (up 29%) led by distribution and investment banking. Though slippages were higher at 2.8% (1 lumpy account), the bank’s proactive sale to ARC (1 NPL and 3 other stressed accounts) led to improvement in head line asset quality.
Slippages were driven by one corporate account (declared fraud by RBI). However, sale to ARC (4 accounts of R420 crore gross value) led to GNPLs of 0.8% (1.05% in Q3FY15). With this sale, IIB has preponed future stress and expects no major pain going forward. Taking benefit of RBI dispensation, the bank decided to amortise shortfall (R260 crore) on sale over 8 quarters, implying annualised credit cost of 10bps; including this, it expects FY16 credit cost to be well below guidance.