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    IndusInd Bank-2QFY14 Result Update - 15 October 2013 Longtermgrp++ NB

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    IndusInd Bank reported earnings above expectations for the second quarter of fiscal year 2014, with net earnings of Rs3.3 billion, up 31.9% year-over-year. However, the bank revised upwards its provisioning estimates for fiscal years 2014 and 2015 by 32.7% and 39.6%, respectively, and cut its earnings estimates due to concerns over the weak macroeconomic environment. While asset quality remained stable, the bank's immunity to the broader economic slowdown was seen as strange. The target price was cut to Rs445 per share from Rs450, but the rating was retained at "Hold".

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    IndusInd Bank-2QFY14 Result Update - 15 October 2013 Longtermgrp++ NB

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    IndusInd Bank reported earnings above expectations for the second quarter of fiscal year 2014, with net earnings of Rs3.3 billion, up 31.9% year-over-year. However, the bank revised upwards its provisioning estimates for fiscal years 2014 and 2015 by 32.7% and 39.6%, respectively, and cut its earnings estimates due to concerns over the weak macroeconomic environment. While asset quality remained stable, the bank's immunity to the broader economic slowdown was seen as strange. The target price was cut to Rs445 per share from Rs450, but the rating was retained at "Hold".

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    IndusInd Bank-2QFY14 Result Update -15 October 2013 Longtermgrp++ NB

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    IndusInd Bank reported earnings above expectations for the second quarter of fiscal year 2014, with net earnings of Rs3.3 billion, up 31.9% year-over-year. However, the bank revised upwards its provisioning estimates for fiscal years 2014 and 2015 by 32.7% and 39.6%, respectively, and cut its earnings estimates due to concerns over the weak macroeconomic environment. While asset quality remained stable, the bank's immunity to the broader economic slowdown was seen as strange. The target price was cut to Rs445 per share from Rs450, but the rating was retained at "Hold".

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    IndusInd Bank-2QFY14 Result Update - 15 October 2013 Longtermgrp++ NB

    Uploaded by

    darshanmalde
    IndusInd Bank reported earnings above expectations for the second quarter of fiscal year 2014, with net earnings of Rs3.3 billion, up 31.9% year-over-year. However, the bank revised upwards its provisioning estimates for fiscal years 2014 and 2015 by 32.7% and 39.6%, respectively, and cut its earnings estimates due to concerns over the weak macroeconomic environment. While asset quality remained stable, the bank's immunity to the broader economic slowdown was seen as strange. The target price was cut to Rs445 per share from Rs450, but the rating was retained at "Hold".

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    Institutional Equities

    IndusInd Bank
    15 October 2013 Reuters: INBK.BO; Bloomberg: IIB IN

    Earnings Above Expectations; TP Cut, Retain Hold


    IndusInd Bank posted net earnings of Rs3.3bn for 2QFY14 aided by a 37.3% YoY growth in net interest income (NII), loan book growth of 24.2% YoY and innovative interpretation of the Reserve Bank of India (RBI) guidelines on mark-to-market losses by providing only Rs163mn (in place of Rs382mn/ quarter for the remaining three quarters of FY14). We believe that given the current weak macro-economic environment, the business outlook remains challenging for the bank but the reporting of lower non-performing assets (NPAs) indicates its immunity to the broader economic slowdown, which is quite strange. Factoring in these concerns we have revised upwards our provisioning estimates for FY14/FY15 by 32.7%/39.6%, respectively, and cut our earnings estimates for FY14/FY15 by 5.1% and 4.9%, respectively. We have cut our target price on the stock to Rs445 from Rs450 earlier, but retained our Hold rating on it. Operational performance: IndusInd Bank posted 2QFY14 earnings of Rs3,302mn, up 31.9% YoY but down 1.4% QoQ, aided by YoY growth of 37.3% in NII, which was above our net profit estimate of Rs3,161mn by 4.5% and Bloomberg consensus estimate by 7.3%. It reported interest income growth of 16.8% YoY and 5.6% QoQ, while interest costs grew 8.2% YoY and 7.0% QoQ to fuel NII growth. NII showed a deviation of 6.6% from our estimate of Rs6,565mn. The bank reported a growth of 30% YoY, but a decline of 11.4% QoQ in non-interest income at Rs4,167mn versus our estimate of Rs4,159mn. Core fee income grew 32% YoY and 11% QoQ. Overheads rose 28.8% YoY and 4.0% QoQ at Rs5,288mn. Margins slip sequentially: IndusInd Bank posted a decline of 7bps sequentially in margins at 3.65% in 2QFY14 compared to 3.25% in 2QFY13. A 21bps expansion in cost of funds and 11bps improvement in yields on advances contained the decline in margins. While the bank maintained less volatility in margins, with a movement of 10bps either way from the current levels, we have factored in margins at 3.4%-3.5% going forward. However, the bank has done well by tweaking its borrowings in order to have a capped impact on margins.
    Y/E March (Rsmn) Interest on credit Interest on investments Interest on inter-bank funds Interest income Interest expenses Net interest income Total other operating income Total income Staff expenses Total overheads Profit before provisions Income tax Bad debt provisions Total provisions Net profit EPS (Rs) 2QFY13 13,819 3,238 180 17,279 (12,182) 5,097 3,205 8,302 (1,621) (2,483) 4,198 (1,205) (490) (1,695) 2,503 4.8 1QFY14 15,116 3,674 330 19,122 (12,327) 6,795 4,706 11,501 (1,936) (3,149) 6,416 (1,747) (1,321) (3,068) 3,348 6.4 2QFY14 16,113 3,655 416 20,186 (13,186) 6,999 4,167 11,167 (2,020) (3,268) 5,879 (1,688) (889) (2,577) 3,302 6.3 YoY (%) 16.6 12.9 131.3 16.8 8.2 37.3 30.0 34.5 24.6 31.6 40.0 40.1 81.3 52.0 31.9 -

    HOLD
    Sector: Banking CMP: Rs428 Target Price: Rs445 Upside: 4% Hemindra Hazari [email protected] +91-22-3926 8017 Manuj Oberoi [email protected] +91-22-3926 8114
    Key Data Current Shares O/S (mn) Mkt Cap (Rsbn/US$bn) 52 Wk H / L (Rs) Daily Vol. (3M NSE Avg.) Price Performance (%) 1M IndusInd Bank Nifty Index Source: Bloomberg 6.8 4.5 6M 6.7 10.6 1 Yr 16.9 7.7 524.2 224.1/3.6 532/312 3,754,565

    2QFY14 Result Update

    QoQ (%) 6.6 (0.5) 26.1 5.6 7.0 3.0 (11.4) (2.9) 4.3 3.8 (8.4) (3.4) (32.7) (16.0) (1.4) -

    1HFY13 26,940 6,267 347 33,599 (23,661) 9,938 6,393 16,331 (3,147) (4,946) 8,238 (2,348) (1,025) (3,373) 4,866 9.3

    1HFY14 31,229 7,328 747 39,308 (25,514) 13,794 8,873 22,668 (3,956) (6,417) 12,295 (3,435) (2,209) (5,645) 6,651 12.7

    YoY (%) 15.9 16.9 115.4 17.0 7.8 38.8 38.8 38.8 25.7 29.7 49.2 46.3 115.5 67.4 36.7 -

    Source: Company, Nirmal Bang Institutional Equities Research

    Please refer to the disclaimer towards the end of the document.

    Institutional Equities
    Exhibit 1: Financial summary
    Y/E March (Rsmn) Total income Profit before provisions NIM (%) Net profit EPS (Rs) EPS growth (%) PE (x) Price/book value (x) Price/adjusted book value (x) Dividend yield (%) Cost-to-income (%) RoA (%) RoE (%) Tier-1 capital (%) FY11 20,902 10,817 3.6 5,773 12.4 45.2 34.5 5.2 5.4 0.5 48.2 1.4 17.9 12.3 FY12 27,160 13,730 3.4 8,026 17.2 38.5 24.9 4.5 4.7 0.5 49.4 1.6 18.4 11.2 FY13 35,958 18,395 3.5 10,612 20.3 18.3 21.1 3.0 3.2 0.7 48.8 1.6 17.4 13.8 FY14E 45,357 22,779 3.4 12,651 24.2 19.2 17.7 2.7 2.8 0.8 49.8 1.6 15.7 13.4 FY15E 55,969 27,483 3.5 15,823 30.3 25.1 14.1 2.3 2.4 0.8 50.9 1.6 17.1 12.7

    Source: Company, Nirmal Bang Institutional Equities Research

    Asset quality remains stable


    While there were apprehensions that IndusInd Banks commercial vehicle (CV) loan segment would witness stress as some other major CV financiers faced problems, the bank has surprisingly performed well by reporting an improvement in asset quality of this segment with gross non-performing assets (GNPAs) and net non-performing assets (NNPAs) at 1.08% and 0.40% respectively, compared to GNPAs and NNPAs at 1.17% and 0.52%, respectively, in 1QFY14. While we remain sceptical, the management sounded confident on this front for the coming quarters. While the stress was evident in the two-wheeler and LAP(Loan against property) portfolio, the asset quality remained stable in all other consumer finance segments. For 2QFY14, IndusInd Bank reported GNPA growth of 33.4% YoY and 8.1% QoQ at Rs5,464mn against our estimate of Rs5,407mn, and NNPA decline of 4.4% YoY but a growth of 7.8% QoQ at Rs1,092mn against our estimate of Rs1,356mn. Consequently, GNPAs and NNPAs in percentage terms for the quarter stood at 1.11% and 0.22%, respectively, against 1.03% and 0.29%, respectively, during the corresponding quarter a year ago. Going forward, we expect 34.1% and 33.7% CAGRs in GNPAs and NNPAs respectively, over FY13-FY15E. Restructured loan book as of end-2QFY14 deteriorated marginally to 0.31% of gross advances from 0.28% in 1QFY14.

    Strong loan book growth


    IndusInd Bank reported balance sheet expansion of 24.8% YoY, led by loan book growth of 24.2% YoY and deposit growth of 11.1% YoY. Borrowings witnessed a growth of 107.5% YoY on account of higher refinancing and foreign exchange borrowings. Loan mix of its advances book, comprising consumer finance and corporate loans, remained skewed in the ratio of 49.4:50.6. Low-cost deposits for the quarter stood at 31.8% aided by strong traction in savings accounts.

    Valuation and outlook


    At the current market price, IndusInd Bank stock trades at 2.7x FY14E BV and 2.8x FY14E ABV. We believe that given the current weak macro-economic environment, the business outlook remains challenging for the bank but its sustained reporting of lower NPAs indicates immunity to the broader economic slowdown, which is quite strange. Factoring in these concerns, we have revised upwards our provisioning estimates for FY14/FY15 by 32.7%/39.6% respectively and cut our earnings estimates for FY14/FY15 by 5.1% and 4.9%, respectively. Consequently, our target price stands marginally reduced to Rs445 from Rs450 earlier. We have retained our Hold rating on the stock.

    IndusInd Bank

    Institutional Equities
    Conference call takeaways
    Cost of borrowings and deposits went up during the quarter. While the management did well in containing the decline in margins at 3.65%, recourse to refinancing close to Rs30bn (blended cost at 7.0% with no SLR or Statutory Liquidity Ratio requirement) and foreign currency borrowings (blended cost at 7.5%) came in handy. The bank expects to make the optimum use of alternate channels, with least exposure to the MSF or Marginal Standing Facility window going forward. Cost of deposits was flat in 2QFY14, largely on account of traction in savings accounts and lower re-pricing of deposits. Trading profit stood at Rs242mn compared to Rs1,045mn in 1QFY13 as the bank sold close to 50% of its G-secs, while the remaining has been provided for. The bank reported deposit growth of 11.1% YoY and a decline of 4.7% QoQ. The sequential decline has been attributed to the funding mix. The bank expects to bring down its cost-to-income ratio to 45.0% from 47.4% currently. The bank expects to open 625 branches by the end of FY14. Corporate bond book of the bank stood at Rs8,000mn. Mark-to-market losses have been equally divided into seven quarters. The management has given guidance on keeping the banks core fee income growth intact over loan book growth going forward. Wholesale deposits to total funding ratio stood at 35%-36%, while the ratio of wholesale deposits to total deposits stood at 45%. The bank has sold loans close to Rs16bn in 2QFY14 compared to Rs20bn in 1QFY14. The banks investment banking revenue, up 101% YoY and 32% QoQ at Rs658mn, is completely on the debt side. The bank has sold close to Rs250mn of its loans to an ARC (asset reconstruction company). Currently, it holds close to Rs850mn of security receipts.

    Rating track
    Date 21 August 2012 4 October 2012 11 October 2012 4 December 2012 7 January 2013 9 April 2013 22 April 2013 7 October 2013 14 October 2013 Rating Buy Hold Hold Buy Buy Buy Hold Hold Hold Market price (Rs) 333 370 358 421 431 395 450 396 428 Target price (Rs) 383 383 383 510 510 510 510 450 445

    IndusInd Bank

    Institutional Equities
    Disclaimer
    Stock Ratings Absolute Returns
    BUY > 15% HOLD 0-15% SELL < 0%
    This report is published by Nirmal Bangs Institutional Equities Research desk. Nirmal Bang has other business units with ind ependent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication.

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    Team Details:
    Name Rahul Arora Hemindra Hazari Sales and Dealing: Neha Grover Ravi Jagtiani Pradeep Kasat Michael Pillai Umesh Bharadia AVP Sales Dealing Desk Dealing Desk Dealing Desk Dealing Desk [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 3926 8093 +91 22 3926 8230, +91 22 6636 8833 +91 22 3926 8100/8101, +91 22 6636 8831 +91 22 3926 8102/8103, +91 22 6636 8830 +91-22-39268226 CEO Head of Research Email Id [email protected] [email protected] Direct Line +91 22 3926 8098 / 99
    +91 22 3926 8017 / 18

    Nirmal Bang Equities Pvt. Ltd.


    Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park Lower Parel (W), Mumbai-400013. Board No. : 91 22 3926 8000/1 Fax. : 022 3926 8010

    IndusInd Bank

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