Thursday, April 26, 2012

>INDUSIND BANK: Firing on all cylinders

IndusInd reported better‐than‐expected PAT of Rs2.23bn (up 30% YoY) led by a beat in loan growth and stronger‐than‐expected fee income momentum. Apart from improving profitability and strong growth, IIB continues to deliver on all its cycle II growth strategies, and like HDFCB, is well placed to deliver strong PAT growth in FY13. Current valuations at 3.1x FY13 book are not cheap but consistent and all round performance inspires confidence. Hence, we maintain our ‘BUY’ rating, with a revised PT of Rs400/share.

 Surprise in top‐line performance: NII was ~4% higher-than-expected due to strong sequential loan growth (8% QoQ) and surprise in margins, with ~5bps accretion QoQ v/s a marginal contraction expected. Fee income growth has been exceptionally strong at ~60% YoY growth in Q4FY12, with growth across all segments. With margins expected to improve in FY13, we believe IIB will be able to sustain its top-line growth momentum in FY13.

■ Delivering on all its cycle II growth drivers: After the 08-11 growth phase, management had laid out it’s cycle II growth drivers and we continue to see management delivering on most counts including (1) improving liability franchise with ~2.5% SA accretion post SA re-regulation (2) filling up the product gap (LAP/credit cards) on the retail side and most importantly (3) gaining significant fee income traction in personal distribution and IB business.

 Strong PAT growth to sustain in FY13: With a large fixed rate asset base, we expect margins to improve by ~15-20bps in FY13 and drive profitability improvement. We increase FY13/14 estimates by ~7-8% on higher growth and margins and with credit costs at ~75bps for FY13, there could be further upsides.

 Maintain ‘BUY’, with a PT of Rs400/share: Current valuations at 3.1x FY13 book are not cheap but high loan growth, strong fee income momentum and very limited asset quality risk inspire confidence. We maintain our positive view on IIB.