IndusInd Bank –Buy- Anand Rtahi
IndusInd Bank’s net profit was driven by higher net interest income growth (89% y-o-y), fees (46.3% y-o-y) and reduced cost-income (by 124bp to 50.5%). We maintain BUY, given we expect RoE to expand as margins, fees and NPA coverage improve.
Advances and deposits grew 30.3% and 20.8% yoy, respectively. Reported NIM improved 71bp y-o-y to 3.2%, largely led by cost of deposits falling 237bp y-o-y. CASA share continues to improve, by 415bp y-o-y and 113bp qoq to 23.7%. Led by likely improvement in CASA share to 26.5% in FY11 and 28% in FY12, we expect NIMs of 3.2% in FY11 and 3.3% in FY12.
Led by steady business growth, fee income has risen 46.3% y-o-y, and is now approx 1.6% of average earning assets (annualized). We expect the contribution from fees to help RoEs improve to 21.1% in FY11 and 25.2% in FY12.
From 30% last year, NPA coverage has doubled to 60%. With robust pre-provisioning profits expected over FY10-12, we expect the bank’s NPA provisioning coverage to further improve and reach 70% by Sep ’10.
At our target, the stock would trade at 3.1x FY11e and 2.5x FY12e BV. Our target is based on the two-stage dividend-discount model.
Popularity: 2% [?]
Category: Broker tips
Subscribe
If you enjoyed this article, subscribe to receive more just like it.
