Emkay Global Financial has given Buy recommendation for Indusind Bank with a target price of Rs. 1375 in its research report issued on Jul 28, 2021
Emkay Global Financial’s report on Indusind Bank
Despite lower margins, higher opex and elevated provisions, IIB reported an in-line PAT of Rs10.2bn (up 99% yoy), mainly due to healthy fee growth. GNPA formation (up 21bps qoq to 2.9%) was largely in line with larger peers, while restructuring was below management’s guidance (up 60bps qoq to 2.7%). As per management, the bulk of the retail/SME stress formation from the second Covid wave is behind, and normalization should start from H2. The bank carries a healthy Covid contingent provision of Rs20bn (incl. Rs12bn for restructuring)/1% of loans. Its specific provision stands at Rs1.5bn toward the risky telecom exposure (Vodafone: Rs34bn). Deposit growth (26% yoy) far outpaced credit growth (6% yoy), hurting margins in Q1. However, steady retailization of assets (55% vs. 52%)/liabilities (50% vs. 37%) and credit growth acceleration with a better grip on asset quality should drive NIMs up. This, coupled with moderating LLP, should increase RoA/RoE to 1.7-1.9%/15-16% over FY23-24E.
We believe a resurgent IndusInd with a better liability profile, higher retail orientation, and risk-guards in place should deliver sustainably higher return ratios, providing a good turnaround story to play on. Retain Buy with a revised TP of Rs1,375 (2x Jun’23E ABV).