Bank has been meeting targets set

Transcription

1 TM 15 April 2013 Achieving scale with profitability Bank has been meeting targets set for itself at the time of change of management in 2008, in terms of prodctivity, profitability and efficiency. While CAGR of total assets from FY 08 to FY 13 was 25.8%, that of deposits & loans was 23.24% & 28.2% respectively. Bank grew its net profits by CAGR of 69.5% in the last five years, vindicating the policies adopted by the management for improvement in profitability and prodctivity. A CONSILIUM INFORES & ADVISORS INITIATIVE FOR BALANCE EQUITY BROKING (INDIA) PVT LTD

2 BSE SENSEX/S & P NIFTY 18358/5568 Sector Shareholding Pattern as on Mar 13 (%) Bank Market Cap./Free Float (` Crs.) 21027/17812 Market Price as on 15/4/13 `(FV `10/-) Week High/Low ` /288 Eqity Shares Otstanding (in Crs.) P/E Ratio (Times) (for FY 13) 20.1 P/B (Times) (for FY ' 13) 2.83 NIM % (FY '13) 3.43 ROE % (FY '13) * ROA % (FY '13) 1.63 * On increased capital raised in Dec Promoter FII DII Others Highlights As part of the strategy to improve profitability, Bank has been concentrating on increasing its CASA ratio which improved from 15.7% in FY 08 to 29.3% in FY 13 (16.3% in Crrent Accont balances and 13% in Savings Acconts). Bank reported sbstantial jmp in the margins in March 13 qarter, as cost of fnds went down with raising of eqity fnds (Qalified Instittional Placement) of ` 2000 Crs. at ` 384/- per share. Bank has been able to maintain its asset qality inspite of the higher delinqencies generally experienced by banking and finance indstry. There was a small increase in both GNPA (Gross Non-Performing Assets) and NNPA (Net Non-Performing Assets) ratios as on March 13 compared to previos year GNPA 1.03% (0.98%), NNPA 0.31% (0.27%). While Bank grew its total income net interest income & other income by 32% y-o-y, net profit grew by 31%.Total deposits grew by 28% dring FY 13, otpacing advances growth of 26%. Share Price Performance Loan growth for FY 13 came down to 26% from 34% in FY 12, mainly de to sale of assets worth ` 3000 Crs. in the last qarter. Company had 27.3% exposre to CV and LCVs as on March 13. Althogh indstry is facing stress on this portfolio in general, Bank management maintains that they lend to small transport operators segment where the delinqencies are lowest. Bank as a policy does not finance large fleet operators.

3 Corporate & Commercial lending forms 49.5% of total advances. Ot of this, Bank has 3.34% (highest) exposre to NBFCs other than Hosing Finance Companies. Power sector exposre is 2.34% and Constrction related to Infra acconts for 1.9%, while Gems & Jewellery takes another 1.94%. Other income component in total income for FY 13 was abot 38%. Bank will now be consciosly trying to increase interest income contribtion in the total income in ftre. Indsind has been added to CNX NIFTY - 50 shares index recently. Promoters have broght down their stake to 15.3%. 15% promoter stake is expected to be one of the reqirements for new bank licensees, and wold in all probability apply to existing private players. Important Parameters Period Ended (` Crs.) FY '10 FY '11 FY '12 FY '13 Jne '12 Sept. '12 Dec. '12 March '13 Total Assets Loan Growth (%) Fee Growth (%) Retrn on Assets (%) Net Interest Margin (%) Cost to Income Ratio (%) Credit Deposit Ratio (%) CASA (%) ROE (%) (on Average Eqity) Gross NPA (%) Net NPA (%) Restrctred Advances (%) Provision Coverage Ratio (%) Capital Adeqacy Ratio (%) Tier I Capital (%) Tier II Capital (%) Yield on Assets (%) Yield on Advances (%) Cost of Deposits (%) Cost of Fnds (%) Revene per Employee (in ` Lacs) Branch Network Note: Lower ROE in Dec. 12 qarter & FY 13 de to QIP

4 Backgrond After change in management in 2008, Bank implemented a strategy called Planning Cycle I for three years ended FY 10. Under this, it focsed on prodctivity, profitability and efficiency. Some of the measres ndertaken were branch expansion, brand bilding, better corporate governance and investment in technology. These measres were targeted towards strengthening retrn ratios, controlling costs and non performing assets & increasing employee efficiencies. Planning Cycle II - Invest to Grow phase started from FY 11 & lasted till FY 13. Under this cycle, Bank achieved scale with profits, with higher than indstry growth, especially consmer loans and fee growth higher than loan growth and achieved higher CASA and better management of credit deposit ratio. Planning Cycle III Market share with profitability & selective domination Specialisation in Corporate Banking Bild a High Street Brand Key Initiatives Investment Banking Expansion Indstry Specialisation Rral & Inclsive Banking Bild Scale in Bsiness Banking Bild Brand arond Innovation theme Ten Fold Increase in Brand Bilding Spend

5 Company has recently nveiled Planning Cycle III for three years starting from crrent fiscal, FY 14. After establishing itself as mid size player with enviable track record, the Bank is now targeting profitable growth throgh acqiring higher market share. For this it will establish its dominance in selected areas like vehicle financing. Hence, for the next three years Bank has set for itself target of increasing its loan portfolio between 25-30%, apart from increasing fee income higher than loan growth, while dobling cstomer base and branch network dring this period. CASA is targeted to be in 30 s. Consmer loan portfolio acconts for 50.5% of the total loan book of ` 44,321 Crs., and comprises of loans for bying vehicles, eqipment financing, credit card, loan against property, home loans etc. 40% of total loan portfolio consist of vehicle loans ` Crs. As part of prdent asset liability management, Bank generally finances consmer loans portfolio from CASA and retail deposits and corporate loans from blk deposits, which is abot 50% of total deposits. As a part of strategy, Bank plans to adopt certain pockets of markets as home markets and have identified 12 sch markets. It plans to have 5% of total bank branch network in those areas and become dominant player. Bank also plans to increase its brand bilding expenditre by 5x this fiscal & 10x in the next three years Large Corporate Medim Corporate 26.7 Small Bsiness Comm. Vehicle Loans Utility Vehicle Loans Small CV Two Wheeler Loans Car Loans Eqipment Financing 14.6 Credit Card Others(Home, Personal) Loan against Property 8.1

6 Financial Performance Contining with its trend of growing at higher than indstry while improving its retrn ratios, Bank has reported excellent reslts for the qarter & year ended March 13. Indsind has been increasing its consmer finance portfolio at a rate higher than corporate & commercial banking loans. As a reslt, consmer loans form 50.5% of total loan book as on March 13, as against 40% as on March 10 and has grown 2.6 x in 2 ¾ years. This has reslted in higher profitability and resltant retrn ratios as lending rates of consmer loans are mch higher compared to corporate & commercial loans. Another factor responsible for high profit growth is continos increase in CASA ratio from 15.7% in FY 08 to 29.32% in FY 13. Third factor contribting to the profit growth in the past few years is focs on niche segments and strong risk management systems reslting in good asset qality and low gross and net NPAs. Bank has been targeting to increase its fee income at a higher pace than loan growth. Net Interest Margin in the last qarter went p to 3.7% from 3.46% in previos qarter de to lower cost of fnds and improvement in core income. In the recent qarter, althogh Bank has otpaced the indstry growth as in the past, the slowdown in commercial sector did impact the CV disbrsements, which showed flat growth. Isse Eqity Capital isses in last 4 years No. of shares (in Crs.) Isse Price (`) Amont Raised (` Crs.) Eqity Capital Post Isse (` Crs.) Agst ' Sept. ' Dec. ' Note: Bank issed GDR in March 07 & Jne 08

7 Comments As a part of its plan to increase its fee income, Indsind is focsing on Investment Banking (IB). It is bilding p capacities in M & A segment. At present, it is ndertaking primarily debt strctring, syndication and debt advisory in IB, apart from private eqity deals. IB will generally form 10-12% of total fee income. This, as well as rral banking form part of growth strategy of the Bank. Bank plans to introdce gold loan prodcts shortly, inspite of movement in the price of gold. Credit Card bsiness, where many of its peers are seeing high delinqencies, is small for Indsind. It has made profit of ` 40 Crs. in FY 13, on book size of ` 342 Crs., and hopes to doble the book and profits in the crrent fiscal. Althogh CASA stands at 29.32% as on March 13, in last two qarters, CASA has moved p to 40% of incremental deposits. Overall target for CASA is 34-35% by FY 16. For achieving higher than indstry growth like in the past five years, Bank has adopted a three year strategy - third since FY 08 - with varios initiatives like dobling its branch network to 1000 & consmer base to 65 lacs in the next three years. It holds 182 new licenses and plans to add branches in the crrent fiscal. As a part of growth strategy, it plans to achieve domination in certain selected areas. In vehicle financing it is planning to become no. 1 player by growing its market share in all vehicle categories, especially sed CVs. Used CVs portfolio which is 10% of total portfolio at present, is slowly inching p, with 15% of crrent disbrsements in sed vehicles and ltimate aim of having 50% of portfolio of sed vehicles. Bank has increased its Net Interest Margin to 3.7% in Q4 of FY 13 from 3.46% in the previos qarter. Management feels that there is a scope for increasing NIM frther, even withot increase in CASA ratio. If CASA ratio increases as planned, it might reach its goal of % NIM. High growth in fee income has reslted in higher Retrn on Assets which increased from 1.57% in FY 12 to 1.63% in FY 13. to 80%. At present, provision coverage ratio stands at 70%. Bank has adopted a policy of sing all windfall profits to increase this ratio Althogh valation is not cheap at present at 2.83 x BV on March 13 & 20 x earnings on increased capital, we believe that stock will keep on reflecting improved earnings in ftre qarters.

8 Financials Period Ended (` Crs.) FY '10 FY '11 FY '12 FY '13 Jne '12 Sept. '12 Dec. '12 March '13 Interest Income Interest Expense Net Interest Income Other Income (OI) Core Fee component in OI Total Income Employees Cost Other Operating Exp Operating Profit before Prov. & Cont Prov. & Cont Exceptional Items Profit Before Tax Tax Profit After Tax Eqity Capital No. of Eqity shares Reserves EPS (`) Book Vale (`) ROE (%) Note: ROE for FY 13 is lower de to QIP made in Dec. 12. Segmentwise Reslts Period Ended (` Crs.) FY '10 FY '11 FY '12 FY '13 Jne '12 Sept. '12 Dec. '12 March '13 Retail Banking Revene Op. Profit before Prov Corporate/Wholesale Banking Revene Op. Profit before Prov Treasry Operations Revene Op. Profit before Prov Other Banking Bsiness Revene Op. Profit before Prov

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