IndusInd Bank’s (IIB) Q3FY16 PAT of Rs 560 crore (up 4% QoQ) was marginally ahead of our estimate on better revenue momentum. Key highlights: 1) core operating profitability gathered pace on healthy NII (up >35% on above industry loan growth and NIM improvement following capital raising benefit) and healthy core fee income (up ~30% YoY); 2) rebalancing of loan look continued with retail growth picking up (up >25% YoY); 3) asset quality was stable with credit costs contained at 17bps (including amortisation of loss due to sale to ARCs in FY15); and 4) robust traction in SA deposits (up >32% YoY) taking CASA to 35%. Given strengthened retail liabilities, superior RoA and well capitalised position, we anticipate execution risks to be minimal.
However, higher proportion of corporate asset below BBB, higher loan and deposit concentration and sustainability of higher than peers fee profile needs to be closely watched.
Above-industry growth, improving liability franchise, superior fee income and stable credit costs will sustain earnings momentum. The stock trades at 2.4x (post capital raising) FY18E P/ABV.