Banking India IndusInd Bank (IIB) IIB IN; IIB.BO Institutional Equity Research January 12, 216 result review BUY Strong all-round performance Current price (12 Jan) Rs 913 Target price Rs 1,11 Upside/(downside) % 22 Earning estimate Unchanged Market data Mkt capitalisation Rs bn 542.1 Average daily vol ' 1249.5 52-week H/L Rs 989.3 / 784 Shares O/S mn 593.6 Free float mn 54.7 Promotor holding % 15. Foreign holding % 35.7 Face value Rs 1. Price performance 1m 3m 6m 1yr Nifty (abs) (1.3) (7.8) (1.2) (9.8) Stock (abs) (.3) (3.3) 2. 1.1 Relative to Index 1. 4.5 1 19.9 Performance 1 95 9 85 8 75 (Rs) 7 (1) Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 IIB (LHS) Source: Bloomberg, SSLe Rel. to Bankex (RHS) 4 3 2 1 IndusInd Bank s (IIB) earnings came in line with SSLe at Rs5,81mn (up 29.9% YoY), driven by a healthy net interest income and robust fee income growth. Asset quality remained steady during the quarter. Fuelled by robust growth prospects, high NIM and strong fee income traction, we maintain BUY on the Bank. Strong loan growth continues (ex-gems and jewellery business): The Bank s advances grew 28.7% YoY. Overall, IIB s corporate loan book improved 3% YoY, with its share in the overall loan book increasing 6bps YoY to 58.3% in. The consumer finance division also picked pace to reach 27% YoY the fastest in the last five quarters driven by the commercial vehicles, car and LAP segments growing 31.5% YoY, 25.6% YoY and 23% YoY, respectively. We expect the Bank s advances to expand at a CAGR of ~28% over F15 F18. NIM expansion continues; strong show in fees: IIB s NIMs improved by 2bps QoQ to 3.9%, driven by CASA, with the share of CASA improving to 35.% (up 92bps YoY). With the share of higher yielding assets like two wheelers and credit cards, the fall in yield is slower compared to the cost of funds. A higher CASA share and better higher yielding retail lending is expected to help NIM sustain 3.8% over F16e/F17e. The Bank s non-interest income jumped 37.4% YoY, driven by improvement in processing fees (up 13% YoY) and trade fees (up 36% YoY). As a percentage of assets, fee income improved 3bps YoY to 2.6%. We expect stable fees and productivity going forward. Asset quality stable, geared up for growth: While IIB s gross slippages at 14bps of advances (annualized) increased by 26bps YoY largely from the corporate portfolio. Moreover, the retail book s asset quality improved. We build a 6bps credit cost over F17/F18e. The Bank is well capitalized for strong loan growth, having a Tier 1 capital of 15.6%. Valuations: Strong advance growth, high NIM and diversified stream of fee income are expected to drive a robust 1.9% RoA over F16e/F17e. At our target price, the stock will trade at 3.3x F17e and 2.9x F18e PBV. Key Risks: a) Delay in pickup in CV cycle and b) change in management. Kaitav Shah, CFA +91 22 4227 3349 kaitav.shah@sbicapsec.com Sanket Chheda +91 22 4227 3385 sanket.chheda@sbicapsec.com Sanketa Save +91 22 4227 3459 sanketa.save@sbicapsec.com Financial summary Y/E March (Rs mn) F14 F15e F16e F17e F18e Net interest income 28,97 34,23 44,977 57,854 71,22 NIM 3.75 3.64 3.85 3.96 3.89 Operating profit 25,96 3,982 4,381 51,636 63,97 PAT 14,8 17,937 23,394 3,4 37,237 EPS (Rs) 26.8 33.9 39.6 5.6 62.5 ABV (Rs) 161. 189.7 288.2 329.8 381. P/ABV (x) 5.7 4.9 3.2 2.8 2.4 P/E (x) 34.4 27.2 23.3 18.2 14.7 Dividend yield.4..6.7.9 RoE 16.9 18.2 16.5 15.9 17.1 RoAA 1.8 1.8 1.9 2. 1.9 SBICAP Research on Bloomberg SBICAP <GO>, www.securities.com Please refer to our disclaimer given at the last page.
NII growth is healthy, driven by all-round loan growth Both core fee income and treasury profits support other income. Quarterly financials Y/E March (Rs mn) YoY QoQ e Var. Interest earned 29,277 24,37 2.1 27,978 4.6 29,834 (1.9) Interest expended 17,543 15,756 11.3 17,35 3. 18,158 (3.4) Net interest income 11,734 8,614 36.2 1,943 7.2 11,676.5 Other income 8,39 6,18 37.4 7,835 7.1 7,642 9.8 Operating income 2,124 14,721 36.7 18,778 7.2 19,318 4.2 Operating expenses 9,514 6,981 36.3 8,713 9.2 9,22 5.5 -staff expenses 3,267 2,554 27.9 3,7 8.6 3,252.5 Cost-income 47.3 47.4-15bps 46.4 88bps 46.7 57bps Operating profit 1,61 7,74 37.1 1,65 5.4 1,296 3.1 Non-tax provisions 1,771 98 8.7 1,581 12. 1,419 24.8 Profit before tax 8,839 6,76 3.8 8,484 4.2 8,877 (.4) Taxes 3,29 2,286 32.5 2,884 5. 2,933 3.3 Tax rate 34.3 33.8 44bps 34. 27bps 33. 123bps Profit after tax 5,81 4,473 29.9 5,6 3.7 5,944 (2.3) Extraordinary income... Profit after tax 5,81 4,473 29.9 5,6 3.7 5,944 (2.3) Key takeaways from analyst call: Elevated loan processing fee derived from renewable fee of new diamond portfolio, disbursement fee and renewals of existing loans. Retail fee share contributes 35% from the total loan processing fee. Management has managed to diversify the corporate loan book by marginally decreasing the share of steel and power transmission. Branch expansion target of 12 branches remains to be intact for F17. Operating expenditure is likely to increase in the range of 1-2% in F17 as the bank is investing in branch expansion, technology especially for treasury business etc. Vehicle finance book disbursement has amounted to Rs52.5bn. Sale to ARC stands at Rs.53bn in, of which recovery amounts to Rs.22bn. kaitav.shah@sbicapsec.com I sanket.chheda@sbicapsec.com sanketa.save@sbicapsec.com January 12, 216 2
Advances growth remains robust All-round loan growth during the quarter (in Rs bn) 8 92.3 93.3 91.1 91.8 9.8 92. 92.8 93. 96.9 95.1 1 1% (Rs bn) 6 4 8.5 78.5 79.9 82.8 82.6 82.5 83. 81.9 85.2 9 8 75% 5% 2 7 25% Advances (LHS) Credit-deposit (RHS) 6 % Commercial Vehicles Equipment Financing Two wheelers Car Loans Utility Vehicle + 3W Home Loan + LAP Personal Loans + Credit Card Corporate banking Small Business Strong strides in CASA share Investment in branch network drives higher cost 32 38 12 55 (Rs bn) 24 16 8 28.2 27.7 26.5 27.3 27.9 28. 28.7 29.3 3. 31.8 3 32.5 33.3 33.9 34.1 34.1 34.7 34.7 35. 35 32 29 (Rs mn) 9 6 3 5.8 51.3 5.8 51.8 53. 5.8 5.4 48. 48.6 48.4 48.7 47.8 48.8 49.7 5.5 49.1 49.5 49.3 5.1 53 5 48 26 45 CASA (LHS) CASA share (RHS) Strong Fee income generation continues Avg. profit per branch (LHS) Core cost-income (RHS) Asset quality remains sees some deterioration (Rs mn) 8 6 4 2.1 2.1 2.3 2.4 2.3 2.5 2.5 2.4 2.4 2.4 2.6 2.7 2.8 2.6 2.3 (bps) 7 6 5 72.9 72. 72. 72.7 72.6 72.1 7.3 7.1 79.9 8. 73.6 7.4 7.1 7.2 7. 62.6 6.6 6. 59.9 9 8 7 2 1.9 1.9 2.1 1.8 4 6 3 5 Fees & Comm. (LHS) % of avg earnings assets (RHS) Annualized NPA prov (LHS) NPA coverage (RHS) kaitav.shah@sbicapsec.com I sanket.chheda@sbicapsec.com sanketa.save@sbicapsec.com January 12, 216 3
Yield and cost trend Drop in Yield is slower than the drop in cost Yield on corporate book 11.33 1.93 1.58 1.4 1.1 9.98 Yield on consumer finance business 15.77 15.82 15.78 15.74 15.38 15.6 Cost of Deposits 7.98 7.8 7.68 7.6 7.37 7.15 Fee income witnessed strong traction, especially forex and investment banking Breakup of Fee Income General banking fees 48 424 45 489 414 463 Processing Fee 91 914 1,16 1,44 1,448 1,854 FX 1,394 1,688 1,12 1,595 1,696 1,71 Insurance 847 98 1,274 1,7 1,192 1,26 Investment Banking 928 594 955 1,229 1,14 1,13 Trade & remittances 615 624 798 562 844 851 Total core fee income 5,93 5,223 5,686 5,989 6,733 7,259 as % of assets 2.1 2.1 2. 1.9 2.3 Other income 489.7 884.8 899.1 1254.1 112.4 1131 Total non-interest income 5,583 6,18 6,585 7,243 7,835 8,39 Asset quality Slippages 1,13 1,61 4,49 1,33 1,89 2,52 -share in advances.8 1.1 2.9.8 1.1 1.4 Restructured advances 3,116 3,512 3,646 4,551 4,933 4,766 -share in advances.5.6.5.6.6.6 Breakup of retail GNPAs Corporate NPAs have increased GNPA in the CV cycle is improving. Twowheeler lending has slowed down CV 1.5 1.44 1.27 1.18 1.1 1.5 Utility.77.97 1.8 1.6 1.3 1. CE 1.59 1.64 1.44 1.46 1.57 1.45 Small CV.74.9.92 1.4.84.81 Two-wheelers 2.42 2.36 2.53 2.65 2.83 2.95 Cars.38.48.56.58.41.39 LAP/HL/PL.3.32.33.48.41.57 Cards 1.53 1.53 1.24 1.32 1.35 1.48 kaitav.shah@sbicapsec.com I sanket.chheda@sbicapsec.com sanketa.save@sbicapsec.com January 12, 216 4
Valuations and outlook Strong advance growth, high NIM and diversified stream of fee income are expected to drive a robust 1.9% RoA over F16e/F17e. At our target price, the stock will trade at 3.3x F17e and 2.9x F18e PBV). PBV chart (1-year forward) 1,4 1,5 (Rs) 7 35 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Price 1.5x 2.5x 3.5x 4.5x Historical PBV mean valuations (1-year forward) 4. 3. IIB continues to trade at higher-thanhistorical valuations on high return ratios expectations (x) 2. 1.. Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Dec-9 Apr-1 Aug-1 Dec-1 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 mean stdev +1SD -1SD +2SD -2SD PE chart (1-year forward) 1,2 9 (Rs) 6 3 Apr-6 Aug-6 Dec-6 Apr-7 Aug-7 Dec-7 Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Dec-9 Apr-1 Aug-1 Dec-1 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Prices 1x 15x 2x 25x kaitav.shah@sbicapsec.com I sanket.chheda@sbicapsec.com sanketa.save@sbicapsec.com January 12, 216 5
Roaa decomposition Key Assumptions Y/E March F14 F15 F16e F17e F18e Y/E Mar (Rs mn) F16e F17e F18e Net interest income 3.61 3.49 3.68 3.79 3.73 Balance Sheet Assumptions Other income 2.36 2.45 2.46 2.42 2.33 Credit Growth (%YoY) 28. 28.5 27. -Fee-based income 1.46 1.58 1.62 1.61 1.57 Deposits Growth (%YoY) 26.4 31.3 28.4 -Treasury income.16.12.7.5.3 Investments Growth (%YoY) 2.6 23.1 24.1 -Other miscellaneous income.74.75.77.76.74 CD Ratio 94. 92. 91. Operating income 5.96 5.94 6.15 6.21 6.6 Operating expenses 2.73 2.78 2.84 2.82 2.76 Asset Quality Assumptions Pre-provision profits (PPP) 3.24 3.16 3.31 3.38 3.3 Slippage Ratio 1..9.9 Provisions.58.4.43.4.35 Net Recovery Ratio 46.6 48.4 47.3 Profit before taxes 2.65 2.76 2.88 2.98 2.95 Provisioning Cover 66.3 68.4 71.2 Taxes.9.93.96 1.1 1. Profit after taxes 1.76 1.83 1.92 1.97 1.95 Financials Income statement Ratios Y/E March (Rs mn) F14 F15 F16e F17e F18e Y/E March (Rs mn) F14 F15 F16e F17e F18e Interest earned 82,535 96,92 118,492 148,587 186,58 Earning ratios Interest expended 53,628 62,717 73,515 9,733 114,838 Yield on advances 13.3 12.5 12.4 1 12.1 Net interest income 28,97 34,23 44,977 57,854 71,22 Yield on investments 7.2 7.2 7.2 7.1 7. Growth 29.5 18.3 31.5 28.6 23.1 Cost of deposits 7.6 7.7 7.6 7.4 7.3 Other income 18,95 24,39 3,8 36,892 44,554 Spread 3.4 3.5 3.4 3.2 3.2 Fee-based income 11,76 15,484 19,82 24,577 29,984 NIM 3.7 3.6 3.8 4. 3.9 Treasury income 1,282 1,177 9 7 5 C/I ratio 45.7 46.8 46.2 45.5 45.5 Other miscellaneous income 5,918 7,377 9,36 11,615 14,7 C/I (excl. treasury gains) 47. 47.8 46.8 45.8 45.7 Operating income 47,812 58,241 75,57 94,745 115,774 Growth 33. 21.8 28.9 26.2 2 Profitability ratios Operating expenses 21,853 27,259 34,676 43,19 52,677 RoE 16.9 18.2 16.5 15.9 17.1 Staff cost 8,93 9,85 12,483 15,735 19,227 RoA 1.8 1.8 1.9 2. 1.9 Other operating expense 13,76 17,455 22,193 27,374 33,45 OPM 25.6 25.6 27.2 27.8 27.4 Pre-provision profits (PPP) 25,96 3,982 4,381 51,636 63,97 NPM 13.9 14.8 15.7 16.2 16.1 Growth 41.1 19.3 3.3 27.9 2 Provisions 4,676 3,891 5,254 6,121 6,677 Asset quality Profit before taxes 21,283 27,92 35,127 45,515 56,42 Gross NPAs 1.1.8.8.7.6 Taxes 7,23 9,155 11,732 15,475 19,183 Net NPAs.3.3.3.2.2 Tax rate 33.8 33.8 33.4 34. 34. NPA coverage 7.4 62.6 66.3 68.4 71.2 Profit after taxes 14,8 17,937 23,394 3,4 37,237 NNPA/networth 2. 2. 1.3 1.2 1.1 Growth 32.7 27.4 3.4 28.4 24. Capital adequacy ratio Tier-I 12.7 11.2 16. 14.3 13. Balance sheet Tier-II 1.1.9.7.6.6 Y/E March (Rs mn) F14 F15 F16e F17e F18e Total 13.8 12.1 16.7 14.9 13.6 Capital 5,256 5,295 5,91 5,934 5,957 Equity Multiplier (x) 9.6 1. 8.6 8.1 8.8 Reserves & surplus 85,173 11,151 17,625 196,6 227,596 Networth 9,43 16,446 176,535 21,994 233,554 Per share data (Rs) Deposits 65,23 741,344 936,69 1,229,813 1,579,26 O/s shares (mn.) 526 529 591 593 596 Borrowings 147,62 26,181 195,872 225,252 259,4 EPS 27 34 4 51 63 Other liabilities & provisions 27,187 37,19 4,99 44,999 49,499 Book value per share 164 194 292 334 385 Total liabilities 87,259 1,91,16 1,35,5 1,72,59 2,121,12 Adjusted book value 161 19 288 33 381 Dividend per share 4-5 7 8 Cash & Bank Balances 67,694 17,791 113,75 13,2 139,322 Advances 551,18 687,882 88,489 1,131,428 1,436,914 Valuations (x) Investments 215,63 248,594 299,741 368,944 457,918 P/E 34.4 27.2 23.3 18.2 14.7 Fixed assets 1,164 11,576 25,515 32,169 39,135 P/BV 5.6 4.8 3.2 2.8 2.4 Other assets 25,753 35,316 31,185 39,318 47,831 P/ABV 5.7 4.9 3.2 2.8 2.4 Total assets 87,259 1,91,159 1,35,5 1,72,59 2,121,12 Dividend yield.4 -.6.7.9 kaitav.shah@sbicapsec.com I sanket.chheda@sbicapsec.com sanketa.save@sbicapsec.com January 12, 216 6
Recommendation History 13 11 BUY HOLD SELL Stock Price Target Price Date Stock Price TP Rec. 1-Jan-14 46 55 BUY 17-Apr-14 499 62 BUY 9-Jul-14 544 636 BUY 13-Oct-14 635 7 HOLD 3-Mar-15 888 96 HOLD 16-Apr-15 934 96 HOLD 13-Jul-15 927 1,7 BUY 9-Oct-15 94 1,11 BUY 12-Jan-16 913 1,11 BUY 9 7 5 3 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 (Rs) Source: Bloomberg, SSLe SBICAP Securities Limited (CIN): U65999MH25PLC155485 Research Analyst Registration No INH62 SEBI Registration No.: NSE Capital Market: INB 23152938 NSE Derivatives: INF 23152938 BSE Capital Market: INB 115331 Currency Derivatives: INE 23152938 CDSL: IN-DP-CDSL-37-26 IRDA/IR2/214/241 Corporate Office: Mafatlal Chambers, A-Wing, 2nd Floor, N. M. Joshi Marg, Lower Parel, Mumbai -413. Tel.: 91-22-422733/1 Fax: 91-22-42273335 Email: sbicapresearch@sbicapsec.com www.sbismart.com KEY TO INVESTMENT RATINGS (w.e.f. February 213) Guide to the expected return over the next 12 months. 1=BUY (expected to give absolute returns of 15 or more percentage points); 2=HOLD (expected to give absolute returns between -1 to 15 percentage points); 3=SELL (expected to give absolute returns less then -1 percentage points) DISCLOSURES & DISCLAIMERS Analyst Certification The views expressed in this research report ( Report ) accurately reflect the personal views of the research analysts ( Analysts ) employed by SBICAP Securities Limited (SSL) about any and all of the subject issuer(s) or company(ies) or securities. This report has been prepared based upon information available to the public and sources, believed to be reliable. I/We also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. The Analysts engaged in preparation of this Report or his/her relative:- (a) do not have any financial interests in the subject company mentioned in this Report; (b) do not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report; (c) do not have any material conflict of interest at the time of publication of the Report. The Analysts engaged in preparation of this Report:- (a) have not received any compensation from the subject company in the past twelve months; (b) have not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) have not received any compensation for products orservices other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) have not received any compensation or other benefits from the subjectcompany or third party in connection with the Report; (f) has not served as an officer, director or employee of the subject company; and (g) are not engaged in market making activity for the subject company. Name Qualification Designation Kaitav Shah B.Com, MMS (Finance), CFA Lead Analyst Sanket Chheda BBA, MBA (Finance) Associate Sanketa Save BBI, MBA (Finance) Associate kaitav.shah@sbicapsec.com I sanket.chheda@sbicapsec.com sanketa.save@sbicapsec.com January 12, 216 7
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