Consolidated loan grew 18.4% y-y (+8.2% q-o-q) with standalone bank at +18.1% y-o-y (7.6% q-o-q) – acquisition of Ford and Volkswagen loans helped. Sequentially, unsecured personal/business, cards grew faster, while vehicle and wholesale loans reported moderate growth. Mgmt seemed to indicate towards stronger organic growth in unsecured segments going forward. CASA growth at 17% y-o-y remains weak vs. other frontline banks. NIM improved 17bps q-o-q to 4.62%. Bank has taken ~15bps retail deposit rate hike in Jan-22 in the 180 days-2 year bucket.
Asset quality held up: Gross NPA declined 48bp q-o-q to 2.71% while net NPLs declined 27bp q-o-q to 0.79%. Restructured assets were up 8% q-o-q and remain at 0.5% of loans. SMA2 was at 12bp of loans. Slippages at Rs 7.5 bn were in line. General provisions (ex of NPL provisions) are 91bps of loans which include balance COVID-19 provision of 40bps.
Lower provisions drove net income: Consolidated net income grew ~31% y-o-y, driven by 68% y-o-y growth in aggregate net income for all subsidiaries moderated by ~15% y-o-y growth for standalone bank. Standalone core PPOP (ex non-core fee) was up 3.5% y-o-y (in line) while PPOP was down 7% y-o-y owing to 33% y-o-y growth in expenses. Expenses are likely frontloaded as growth pedal is pushed which is distorting the expense ratio, and should stabilise within a few quarters. There was a net provision write-back as the bank chose to utilise part of COVID-19 provisions which drove net income growth. The bank had an MTM loss of ~Rs 5 bn accounted under other income (risk of running aggressive trading book and interest rates going against the trade).
Change in estimates; remain Neutral: We factor in Q3 lower provisions, and tweak ESP by 3.2%/-1.3%/-1.2% for FY22F/23F/24F. We are factoring in a CAGR of 14% in EPS and 12.6% in book-value over FY21-24F. We lower our TP to Rs 2,060, valuing the stock at 4x P/B. While the stock has time-corrected, it still remains expensive for the RoE it delivers. It trades at 4.2x P/B (Dec-21) and a consolidated basis 29.6x P/E (12m to Dec-22) vs the last 10-year average of 3.9x P/B and 26x P/E. Upside risk –strong loan growth, better NIM, potential M&A deals. Downside risk – higher credit cost, change in top management post Dec-23.