HOLD CMP 380.35 Target Price 417.00 INDUSIND BANK LIMITED Result Update: Q1 FY14 30 th JULY 2013 ISIN: INE095A01012 Index Details Stock Data Sector Banking BSE Code 532187 Face Value 10.00 52wk. High / Low (Rs.) 530.60/308 Volume (2wk. Avg ) 207000 Market Cap ( Rs in mn ) 227030.15 Annual Estimated Results (A*: Actual / E*: Estimated) Years FY13A FY14E FY15E Net Income 69832.30 87569.70 105083.65 Operating Profit 18394.60 23400.63 29371.34 Net Profit 10611.80 12874.45 15581.54 EPS 20.30 24.62 29.80 P/E 21.39 17.63 14.57 Shareholding Pattern (%) Highlights IndusInd Bank Ltd commenced its operations in 1994, caters to the needs of both consumer and corporate customers serves as mid-sized bank. IndusInd Bank Ltd announced its first quarter result with a 40% jump in its Net Interest Income. Total Income has increased from Rs. 19508.20 million for the quarter ended June 30, 2012 to Rs. 23828.10 million for the quarter ended June 30, 2013. The total business of the bank crossed Rs. 10,00,000 mn. Net NPA ratio reduced to 0.21% from 0.27% in Q1 FY14. The Net Interest Margin (NIM) was 3.72% in June 2013 as compared to 3.22% of the corresponding quarter in the previous year. Gross NPA ratio increased from 1.03% in Q4 FY13 to 1.06% and gross NPAs stand at Rs. 5052.30 mn as on 30 th June 2013. 1 Year Comparative Graph Return on Equity and Return on Assets are 17.62% and 1.83% respectively as on 30 th June 2013. INDUSIND BANK LTD BSE SENSEX The bank added 30 new branches in the Q1 FY14. The total network as on 30 th June 2013 constitutes of 530 branches and 1,003 ATMs spread across the country. CASA has increased by 33% in Q1 FY14 over the corresponding quarter in the previous year. Provisions and contingencies of the bank increased by 147% in June 2013. The provisions stood at Rs. 1320.60 mn in Q1 FY 2014 as compared to Rs. 535.00 mn in Q1 FY13. Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) IndusInd Bank Ltd 380.35 227030.15 20.30 21.39 2.98 30.00 Yes Bank Ltd 307.00 109355.2 39.24 7.75 1.88 60.00 ICIC Bank Ltd 899.70 1036745.1 72.14 12.45 1.55 200.00 SBI Bank 1701.00 1165149.3 206.20 8.26 1.18 415.00
Recommendation & Analysis - On HOLD IndusInd similar to its peers is going through stressful economic scenario. As justified by its results, other income increased at a higher growth rate than its core income. Although the YOY increase was 48% for other income and 40% for NII, the quarterly increase was a dismal 3% for net interest income and 28% for the other income category. The NIM increased at an insignificant 0.02% in June quarter over the previous quarter. The Net Interest margin in Q1 FY13 was 3.22% whereas in Q1 FY14 it stood at 3.72%, thus the YOY increase in NIM was also very low at 0.50%. The provisions and contingencies have increased by a whopping 147% as compared to corresponding quarter in the previous year which implies that although the NPA ratio is low at 0.21%, the asset quality of the bank is under stress. Although the bank has low exposure to problematic sectors such as infrastructure and power, still the exposure is high for personal loans. In the present scenario, where RBI is tightening liquidity in the economy through various measures, the asset quality of the bank may deteriorate further. The top players of the banking sector are making efforts to maintain their profitability in spite of stringent liquidity conditions and low investment scenario. IndusInd has infused Rs. 20000 mn as capital in December 2012. Thus the capital adequacy of the bank is sufficient to meet Basel III norms. The tier I capital of the bank is at 13.49% and Tier II capital stands at 1.36%. The capital adequacy ratio of the bank stands at 14.85% as on June 2013. The cost to income ratio of the bank has improved to 44.21% in Q1 FY 14 from 49.68% Q 1 of the previous year. The basic fundamentals of the bank are strong and the YOY ratios are robust. But the quarter ratios show stress and deterioration due to poor macro economic environment. Incase the investment climate of the economy is improved; the banking sector will be the first one to be benefitted. Thus we recommend HOLD for IndusInd Bank with a target price of Rs. 417.00. Profile IndusInd Bank, a mid sized private sector bank commenced its operations in 1994. The bank has a robust technology platform supporting multi-channel delivery capabilities catering to the needs of both consumers and corporates. At present IndusInd Bank has 530 branches and 1003 ATMs across the country as on 30 June 2013. The Bank also has 2 Representative offices, one each in London and Dubai. IndusInd has been included in the Nifty index on 1 st April 2013. Indusind is also listed on BSE and included in BSE 100 and also in three commodity exchanges MSX, NCDEX, and NMCE. IndusInd provides services to 130 PSUs, both central and state, government bodies and insurance companies. The revenues with respect to Financial Institution and PSU clients increased by 56% (YOY). The PSU clients include Maharatna and Navratna PSUs. IndusInd bank has the distinction of being a clearing cum settlement banker to NSE and BSE for capital and future market segments and for all the commodity and currency future exchanges. The bank is also clearing bank to commodity spot exchanges like National Spot exchange and NCDEX Spot exchange. The bank is currently a settlement banker to 14 exchanges in both the capital and commodities segments. With total assets of Rs. 737310.00 mn, IndusInd bank is one of the best in the mid-size segment of the banking industry.
Financial Updates Months June-13 June-12 % Change Net Income 19122.00 16320.40 17.17% Net Profit 3348.40 2362.60 41.73% EPS 6.40 5.04 26.97% EBDITA 6416.00 4040.30 58.80% mn in June quarter 2013. The net income increased 17.17% from Rs. 16320.40 mn to Rs. 19122.00 mn in June 2013. Net profit increased by 41.73% from Rs. 2362.60 in June 2012 to Rs. 3348.40 mn in 2013. Earning per share rose to Rs. 6.40 in Q1 FY14 from Rs. 5.04 in Q1 FY13. The operating profit or EBDITA increased by 58.80% from Rs. 4040.30 mn to Rs. 6416.00 Advances of the Bank as on 30 th June 2013 Consumer Finance As on June 2013 Com. Vehicles 101580 21.40% Utility vehicles 19250 4.00% Small CV 21250 4.50% Two wheelers 20180 4.20% Car loans 22180 4.70% Equipment Fin. 28450 6.00% Credit card 3730 0.80% Loan against Property 16070 3.40% Home, PL etc 860 0.20% Total Advances 233550 49.20% IndusInd Bank has consumer finance exposure of around 49%. The next biggest chunk constitutes of large corporates for 26%. The mid size and small corporates account for 16% and 9% respectively. The Bank through the Consumer Finance Division (CFD) carries out operations in about 187 locations primarily in the underbanked areas which constitutes of 174 locations. The consumer finance segment comprises of loan against property, credit cards, two wheelers, car loans, small utility vehicles etc. The commercial vehicle constitutes 21.4% which is the highest and the lowest is for the home appliances which accounts for 0.20%. The gross credit risk exposure fund based and non fund based as on 31 st March 2013 was Rs. 670310 mn and Rs. 299590 mn respectively.
Segment Revenue Other Important Updates of the bank Other Income increased from Rs. 3187.80 mn in Q1 FY13 to Rs. 4706.10 mn in Q1FY14. Operating Expenses increased by 27% in June quarter 2013 as compared to corresponding quarter in the previous year. Other income which comprises of bancassurance fee, investment banking fees, account processing and card operations etc increased by 48% YOY and 28% compared to the previous quarter. The capital adequacy ratio as on June 30 th 2013 stands at 14.85% as per Basel III and 14.42% as per Basel II norms. The CAR was 15.36% as per Basel II in March 2013. Current account deposits have reduced in Q1 FY14 to Rs. 87650 mn from Rs. 88350 mn in Q4 FY13. The savings account deposits have increased 1.2% as compared to Q1 FY13 from Rs. 70330 mn of Q4 FY13 to Rs. 79080 mn in Q1 FY14. Advances have increased by 27% YOY and stands at Rs. 474250 mn in June 2013. IndusInd Bank launched IndusInd Bank Indulge credit card, a marquee credit card designed for the distinguished individual who wields influence and power in the social hierarchy. Indusind Bank Ltd has expanded its reach across Patna and opened 2 new branches at Kanker Bagh and Rajendra Nagar.
Financial Highlights Balance sheet as on March31st, 2012 to 2015E CAPITAL AND LIABILITIES (A*- Actual, E* -Estimations & Rs. In Millions) FY12 FY13 FY14E FY15E Capital 4677.02 5228.70 5228.70 5228.70 Employee Stock Options 109.46 107.10 0.00 0.00 Reserves & Surplus 42630.60 70966.70 83841.15 99422.70 Deposits 423615.50 541167.20 681870.67 845519.63 Borrowings 86820.13 94595.60 105947.07 120779.66 Other Liabilities and Provisions 18107.98 20999.90 28979.86 39122.81 Total Liabilities 575960.69 733065.20 905867.46 1110073.51 ASSETS Cash and Balances with Reserve Bank of India 29035.76 32498.40 37373.16 43352.87 Balances with Banks and Money at Call and Short notice 26360.46 35988.90 49163.68 64105.73 Investments 145719.46 196541.70 261400.46 342434.60 Advances 350639.51 443206.10 531847.32 632898.31 Fixed Assets 6567.98 7561.40 8468.77 9315.64 Other Assets 17637.52 17268.70 17614.07 17966.36 Total Assets 575960.69 733065.20 905867.46 1110073.51 Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12 FY13 FY14E FY15E Description 12m 12m 12m 12m Net Income 53592.00 69832.30 87569.70 105083.65 Other Income 10117.80 13629.60 17445.89 22330.74 Total income 63709.80 83461.90 105015.59 127414.38 Interest Expended -36549.50-47503.70-59372.26-71456.88 Net Interest Income 27160.30 35958.20 45643.33 55957.50 Operating Expenses -13430.00-17563.60-22242.70-26586.16 Operating Profit 13730.30 18394.60 23400.63 29371.34 Provisions and Contingencies -1803.80-2631.00-3893.88-5762.94 Profit Before Tax 11926.50 15763.60 19506.75 23608.40 Tax -3900.40-5151.80-6632.29-8026.86 Profit After Tax 8026.10 10611.80 12874.45 15581.54 Equity Capital 4677.00 5228.70 5228.70 5228.70 Reserves 40546.70 70966.70 83841.15 99422.70 Face Value (Rs.) 10.00 10.00 10.00 10.00 EPS 17.16 20.30 24.62 29.80
Quarterly Profit & Loss Statement for the period 31 st Dec, 2012 to 30 Sep, 2013E Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-June-13 30-Sep-13E Description 3m 3m 3m 3m Net Income 18004.90 18227.70 19122.00 20078.10 Other Income 3558.00 3678.90 4706.10 5647.32 Total income 21562.90 21906.60 23828.10 25725.42 Interest Expended -12226.90-11615.40-12327.20-13066.83 Net Interest Income 9336.00 10291.20 11500.90 12658.59 Operating Expenses -4614.40-4856.70-5084.90-5491.69 Operating Profit 4721.60 5434.50 6416.00 7166.90 Provisions and Contingencies -786.80-818.50-1320.60-1782.81 Profit Before Tax 3934.80 4616.00 5095.40 5384.09 Tax -1262.10-1542.00-1747.00-1834.35 Profit After Tax 2672.70 3074.00 3348.40 3549.74 Equity Capital 5222.50 5228.70 5234.40 5228.70 Face Value (Rs.) 10.00 10.00 10.00 10.00 EPS 5.12 5.88 6.40 6.79 Ratio Analysis Particulars FY12 FY13 FY14E FY15E EPS (Rs.) 17.16 20.30 24.62 29.80 Operating Profit Margin (%) 25.62% 26.34% 26.72% 27.95% PAT Margin (%) 14.98% 15.20% 14.70% 14.83% P/E Ratio (x) 25.30 21.39 17.63 14.57 ROE (%) 17.75% 13.93% 14.45% 14.89% ROCE (%) 3.09% 3.14% 3.46% 3.77% Debt-Equity Ratio 8.82 6.70 6.59 6.45 Book Value (Rs.) 96.69 145.73 170.35 200.15 P/BV (x) 4.49 2.98 2.55 2.17
Charts Industry Overview The Indian banking industry has come a long way, right from nationalization to corporate houses waiting for bank licenses. Indian banking industry is the nervous system of the entire financial system of the country. RBI through its cautious approach has tried its best to insulate the banking industry and Indian financial system from various external financial shocks. RBI recently undertook various measures to stabalize the Indian foreign exchange rate. The marginal standing facility (MSF) rate was raised by 200 bps and liquidity adjustment facility was capped at 0.5 percent of the net demand and time liabilities (NDTL). But this liquidity squeeze would result in increasing short term and long term rates and in turn affect the profitability of the banks. In addition to this, CRR and REPO rates have also not been changed. Thus the performance of the banking industry is dependent on the monetary policy and regulations of the RBI.
Implementation of Basel III is another challenge for the banking industry. Indian banking industry is already reeling under bad loans and loan restructuring demands of corporates. In midst of this difficult scenario, the banking industry has to implement the BASEL III norms by the year 2018. As per the BASEL III norms, the TierI capital has been fixed at 7% out of which 5.5% should be common equity and there should be capital conservation buffer of 2.5% (of RWAs) over and above the 5.5% common equity. A number of private banks already qualify Basel III as their Tier I capital comprises of core equity. For the public sector banks, the government has proposed to infuse Rs. 140000 mn in the year 2013-14. Our banking industry has weathered the storm of 2008 financial crises but the crises has deepened with tapering of US stimulus and outflow of foreign funds from the debt and equity markets. The Indian currency is at its lowest level. The government needs to make strong structural changes such as reduction of CAD, fiscal deficit and subsidies. With respect to banking sector, the government should remove regulatory hurdles; streamline procedures of government clearances for various infrastructure and power projects. Banking industry s exposure to these high capital intensive sectors have resulted in high proportion of bad loans and non performing assets. Indian banking industry has shown its resilience to external financial turmoil but it will perform well only if all major industries and sectors are financially healthy as banks form the network which connects the financial sector and the economy as a whole. Future Outlook and Conclusion At the current market price of Rs.380.35, the stock P/E ratio is at 17.63 x FY14E and 14.57 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.24.62 and Rs.29.80 respectively. Net Interest Income and Net Profit of the company are expected to grow at a CAGR of 27% and 25% over 2012 to 2015E respectively. Price to Book Value of the stock is expected to be at 2.55 x and 2.17 x respectively for FY14E and FY15E. The banking sector as a whole is going through difficult phase which may continue for the next few quarters, but the basic fundamentals of the bank are robust and the scrip will perform well incase macroeconomic scenario changes. Thus we recommend HOLD for IndusInd bank or Medium to Long term investment.
Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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