IndusInd Bank’s (IIB) Q4FY17 PAT grew 21% y-o-y (in-line) to Rs 7.5b. Provisions were elevated at Rs 4.3b as they included one-off amount of Rs 1.22b on a bridge loan for a cement M&A transaction (account remains standard), where the receivable is in June (likely to get reversed in Q1FY18).

Adjusted for this, PAT grew 34% y-o-y (9% beat). For FY17, PAT growth was healthy at 30% y-o-y. NII grew 31% y-o-y, led by strong loan growth (+28% y-o-y) and 6bp y-o-y improvement in NIM.

Coupled with strong fee income performance (+29/13% y-o-y/ q-o-q) and controlled opex (+27% y-o-y), IIB reported impressive core PpoP growth of 34% YoY. For FY17, NIMs have improved 15bp YoY to 4%. Both corporate (+30% y-o-y) and consumer (+28% y-o-y) loans exhibited robust growth. IIB compensated for lower yet healthy growth in vehicle finance (+20% y-o-y) with strong growth of ~40% y-o-y in retail non-vehicle loans.

You May Also Want To Watch:

Led by robust SA mobilisation (+57/7% y-o-y/ q-o-q), CASA deposits grew 42% y-o-y (CASA ratio stable at 37%). The bank retained 35% of CASA accumulated during demon, and incremental growth was driven by new-to-bank customers.

Slippages in CCB increased more than 4x to Rs 4.57 billion. As a result, CCB GNPAs increased 15% in absolute terms. Asset quality in CFD was largely stable. IIB’s key focus is to scale up on its retail operations, led by higher share of non-vehicle retail loans by FY20.

The bank is targeting 25-30% loan growth, driven by continued branch expansion (+800 branches addition) and strong customer acquisition (2x increase to 20m). Strong core profitability (3% of avg. assets v/s private banks’ avg. of 2.5% and HDFCB’s 2.7%), an improving CASA ratio (best among mid-sized private banks) and healthy return ratios (RoA of 1.9%+ and RoE of 16-18%) are the key positives.

We upgrade estimates by 4-5% to account for higher growth. Maintain Buy with a target price of Rs 1,700 (3.8x FY19 BV). Reported NIM was stable sequentially and increased 6bp y-o-y to 4.0%. This was driven by strong loan growth and declining cost of funds led by continued traction in CASA deposits.

CASA deposits grew 6% q-o-q and 42% y-o-y led by strong mobilisation of SA deposits (+57/7% y-o-y/q-o-q). Cost of deposits declined 27bp sequentially to 6.1%. Yield on funds declined 8bp q-o-q. Yields in the corporate book declined 60bp q-o-q due to MCLR cuts as well as increased share of loans to higher rated corporates. On the other hand, yields in the consumer finance book remained largely stable to 14.49%. Focus of the bank on higher share of retail loans would have a positive impact on margins.