IIB has been steadily delivering on core performance. Stabilisation of deposits and its stance of building on its existing provision buffer render outlook stable.
IndusInd Bank (IIB) posted better-than-expected Q4FY21 PAT of Rs 9.3billion with visible signs of improvement across critical business metrics. Loan momentum improved—driven by strong retail disbursements. Most importantly, deposits rose further 6.8% QoQ—a commendable feat. Asset quality is along expected lines, and we reckon provision buffers are adequate to deal with current uncertainty. IIB has been steadily delivering on core performance. Stabilisation of deposits and its stance of building on its existing provision buffer render outlook stable. Factoring these in, we are raising the target to 1.8x P/B (earlier 1.5x), which yields a TP of Rs 1,150 (up from Rs 880). Consequently, we are upgrading IIB to ‘buy’ from ‘hold’.
IIB reported a stable set of numbers on the asset quality front. Slippages looked optically high at Rs 39billion, but ~50% of these were technical in nature and are already seeing recovery trends. Collection efficiency in MFI and the vehicle loan portfolio is getting better. While a conclusive asset quality prognosis is still a couple of quarters away given the onset of a new Covid cycle, the proactive provisions do make balance sheet more resilient, and we don’t not expect major deviations in ensuing quarters. While we view the credit cost as relatively elevated, we believe the problem is more bounded in nature now than it was couple of quarters back.
Q4FY21 saw business momentum building up with loan growth at 2.4% QoQ supported by strong retail (focus segment) growth. The key highlight is a sustained liability build-up with deposit growth at 6.8% QoQ, despite lowering of interest rate—a commendable feat. Improved growth with levers for a better NIM (rate cut on deposits and shift towards retail assets) will help the bank in building up core profitability. We have never been in the ‘deposit panic’ club and continue to believe that asset fortunes will be the determining factor for the business and its stock performance, wherein provisioning intent and stock build increase comfort. In IIB, concerns around asset quality have dominated gains in its core business. We are enthused by the bank’s performance and believe IIB getting through the current crisis without major earnings erosion has been a better-than-expected outcome. To reflect this increasing confidence, we are upgrading the stock to ‘BUY/SN’.