IndusInd Bank’s Q1FY19 earnings were in-line with expectations and reaffirms our confidence that the bank is structurally poised to achieve Phase IV targets and achieve scale with quality. Loan growth momentum of 29%, sustained CASA, and operating leverage supported 20% YoY NII and >27% YoY operating profit growth. MTM loss of Rs 86 crore fed into softer PAT growth of 24%. Asset quality was steady with slippages at 1.3%, credit cost at 14bps and GNPLs at 1.15%. Key monitorables will be: a) below trend core fee income growth; and b) merger update with BhaFin. Given strong track record, superior RoA and well-capitalised position, execution risks are minimal.
Maintain ‘BUY’ with TP of Rs 2,080. Despite its Phase IV target of lowering corporate loan proportion to 50%, structural opportunities are driving it further up — corporate moved up 30% YoY (NCLT refinancing). Impressively, growth in vehicle portfolio is also sustaining, with commercial vehicle growth more of a trend now. On diversified growth levers, we expect IIB to swiftly capitalise on the recovery momentum and continue to gain market share. Meanwhile, NIMs were down 5bps QoQ to 3.92% on higher deposit cost, bank has raised MCLR (40bps in Q4FY18) which will help cushion NIMs. Core fee income continued below trend at 20% growth which restricted overall revenue momentum – a key monitorable.
Slippages were curtailed at R480 crore (1.3%), which in-turn restricted GNPLs to Rs 1,740 crore (up 2% QoQ). Overall stress was stable at 1.2%. Credit cost was at 14bps (versus 19bps for Q4FY18 and 62bps for FY18). Falling proportion of BBB-and-below rated corporates, leading to lower RWA/assets is encouraging. IIB has delivered yet another steady quarter. Even more commendable is that: 1) IIB is now delivering a mix of sustainable earnings growth with granularity; 2) liability franchise and balance sheet has been strengthening; and 3) outlook is optimistic.