IndusInd Bank Performance above Expectations

Indusind bank reported a strong growth of 29% YoY in PAT, driven by NII growth of 18% YoY and slower growth of 20% YoY in operating cost. Non-interest income growth was strong at 42% YoY, driven by core fee income, forex income and Investment banking fees.

Loan book grows healthy at 24% driven by working capital loans with the corporate loan book, reporting a growth of 38% YoY. CASA improves to 33% from 28% in Q4FY13, led by 41% YoY growth in saving balance (SA). SA improves by 340bps YoY. Cost of funds declined by 1bps YoY, driven by higher CASA and lower borrowings. This in addition with improvement in lending yields by 17bps YoY led to increase in NIMs by 5bps YoY. NIM’s improved sharply QoQ by 10bps to 3.75%.

Gross NPLs declined 1% qoq (+36% yoy, ratio: 1.1%) despite slippages in the retail book inching up to 2.7% from 2.4% in Q3 as INBK sold Rs350mn in NPAs to ARC. As expected NPLs in CV book increased to 1.38% from 1.28% in 3Q. Provision coverage fell from 74% in Q3 to 70% in Q4 on relatively lower provisions, but net NPL remained low at 0.33%.

Valuation and Share Target Price of IndusInd Bank
We expect Indusind bank to report earnings CAGR of 29% over FY14-FY16E with ROAs improving to 1.8% by FY16E from 1.6% in FY14. At the CMP, bank trades at 2.52x FY15E ABV and 2.12x FY16E ABV, lower than its last 8 years average of 2.8x. Expected EPS is Rs 35 and Rs 45 for FY15 & FY16 respectively with a Stock Target Price of Rs 630.