Oct 13, 2017 - maturity, increase in ATS, higher customer additions, and government ... proportion (driven by traction i
INSTITUTIONAL EQUITY RESEARCH
IndusInd Bank (IIB IN)
Strong risk‐adjusted return
13 October 2017
INDIA | BANKING | Quarterly Update Top takeaways from Q2FY18 • PAT was in line due to stability of NIMs (at 4%) and asset quality. • Strong NII was driven by robust growth in advances (+25% yoy). • Fresh slippages at Rs 5bn declined qoq, but corporate slippage remained at an elevated level due to few one‐offs. MFI and 2nd list in NCLR contributed to corporate NPA. Stressed asset pool was flat at 125bps. Asset quality looked stable with GNPA/NNPA at 1.08%/0.44%. Credit cost was at 17bps in Q2. Key highlights: NII growth was aided by loan growth. In consumer finance, loans were driven by credit cards (+55% yoy), LAP (+31% yoy), and home and personal loans (+58% yoy). The corporate and commercial segment was driven by SME (+32% yoy). The rating profile of the corporate book improved by 7% yoy, but remained stable qoq; A‐rated and above constituted 47% of the corporate portfolio, resulting in lower utilisation of capital. Core fee income grew 23% yoy driven by distribution fees (+52% yoy) and trade fee (+25% yoy). Savings deposits witnessed accelerated growth of 95% led by factors such as branch maturity, increase in ATS, higher customer additions, and government business (which now constitutes 15% of SA). Management comments / concall takeaways: nd • Exposure to accounts in the 2 list under NCLT was Rs 3.85bn, with 65% coverage. There was no exposure to Reliance Communications. • Impact of IFRS in FY17 was limited to a negative impact on EPS of Rs 1.5. • Corporate loans were driven by increasing market share in new opportunities, as some of the large players became dormant. • Acquisition of an MFI business will boost profitability and the return ratios of the MFI business under the banking umbrella due to: (1) reduction in costs of fund, (2) deduction in RWA, (3) loans qualifying for priority sector, thus opening up a window for additional revenue from sell‐down of PSL certificate, and (4) cross‐selling opportunities. Outlook and valuation: The bank continued to see strong operating profit led by robust growth in advances and NIM improvement. We expect the increase in consumer finance proportion (driven by traction in non‐CV loans) to subsidise the high‐rated corporate business, thus allaying NIM and asset‐quality concerns. Judicious use of capital and increase in risk‐weighted returns on assets should rerate the bank. We maintain Buy with a target of Rs 1,900 (Rs 1,800 earlier). RoA/RoE should improve to 2.1%/19% by FY19 driven by earnings CAGR of +30% in FY17‐19. At CMP, the stock trades at 4.4x/3.7x FY18/19 adjusted book value per share of Rs 400/474. (Rs bn) Net interest income NIM (%) Advances Consumer advances Corporate advances Deposit CASA CASA % Core fee Trading gain Operating expenses Cost to income ratio (%) Provision PAT Slipapge GNPA NNPA Tier 1 Capital %
Q2FY18 Q2FY17 yoy % Q1FY18 18.2 14.6 24.7 17.7 4.0 4.0 0 4.0 1231.8 989.5 24.5 1164.1 494.7 405.9 21.9 471.0 737.2 583.9 26.2 693.1 1414.4 1123.1 25.9 1336.7 597.8 410.3 45.7 505.0 42.3 36.5 576 bps 37.8 10.1 8.3 22.7 9.7 1.8 1.4 20.8 1.9 13.8 11.5 19.7 13.5 45.7 47.3 (157 bps) 46.0 2.9 2.1 37.3 3.1 8.8 7.0 25.0 8.4 5.0 2.6 90.8 6.1 1.1 0.9 18 bps 1.1 0.4 0.4 7 bps 0.4 15.1 14.7 41 bps 15.7
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
BUY (Maintain) CMP RS 1740/TARGET RS 1900 (+9.2%) COMPANY DATA O/S SHARES (MN) : MARKET CAP (RSBN) : MARKET CAP (USDBN) : 52 ‐ WK HI/LO (RS) : LIQUIDITY 3M (USDMN) : PAR VALUE (RS) :
599 933 14.5 1565 / 1038 22.5 10
SHARE HOLDING PATTERN, % PROMOTERS : FII / NRI : FI / MF : NON PRO : PUBLIC & OTHERS :
Mar 17 16.8 48.6 13.8 3.6 17.2
Dec 16 16.8 48.4 14.0 3.8 17.1
Sep 16 16.7 49.2 13.0 15.6 5.6
Key Financials Rs mn Pre‐prov ROE (%) Pre‐prov ROA (%) Net Profit % growth BVPS (Rs) ROE (%) P/E (x) Adj P/BV (x) EPS (Rs)
FY17 28.4 3.6 28,679 25.4 345.2 15.0 29.8 4.1 47.9
FY18E 31.7 3.7 38,433 34.0 400.9 17.2 22.3 3.6 64.3
FY19E 34.3 3.8 49,655 29.2 473.9 19.0 17.2 3.0 83.0
CHANGE IN ESTIMATES __Revised Est. __ __% Revision__ Rs bn FY18E FY19E FY18E FY19E NII 77.7 98.1 0.0 0.0 PPP 70.8 89.9 0.0 0.0 38.4 49.7 0.0 0.0 Core PAT EPS (Rs) 64.3 83.0 0.0 0.0 Manish Agarwalla, Pradeep Agrawal, Paresh Jain
qoq % vs. expect. % Comments 2.6 ‐4.1 Moderate qoq growth due to one off interest accrual in Q1 0 0 Decline in cost of fund and consequent decline in yield kept NIM flat 5.8 ‐0.4 Of the total loans, 40% comprise of consumer‐finance loans 5.0 Growth driven by small CV loans, LAP, HL, credit card and personal loan 6.4 Driven by large corporate where PSB's participation has been declining 5.8 18.4 CASA growth aided by 95% yoy growth in savings AC 450 bps Branch maturity; home branch strategy; and Govt. business aiding SA 3.9 Strong growth loan processing & trade remittances and distribution fee ‐9.3 1.6 ‐1.0 Employee exp. increased 18.4%, other opex increased 20.3% (29 bps) Decline in cost‐income ratio due to branch maturity nd ‐5.2 ‐16.1 Rs 360mn for 2 list of NCLT cases. Exposure Rs 3.85bn (65% coverage) 5.2 0.0 PAT was broadly in line with expectation ‐18.1 ‐0.4 Rs 5bn fresh slippage. Major contribution NCLT/MFI in corporate book (1 bps) (2 bps) Asset quality continues to remain stable 0 2 bps PCR maintained at 60% qoq (57 bps) CET at 13.81% (‐47bps qoq); RWA growth 22.5% yoy
INDUSIND BANK QUARTERLY UPDATE
Result update (Rs mn) Interest Earned Interest Expended Net interest income Net interest margins Non‐interest income Total Income Total operating expenses Payroll costs Others Pre‐provision Profit Provisions & Contingencies % Operating income PBT Provision for Taxes % of PBT Net Profit Equity EPS, Rs Advances Deposits Advances / Deposits (%) Gross NPAs Gross NPAs (%) Net NPAs Net NPAs (%) CAR – Total
Q2FY18
Q2FY17
yoy growth
Q1FY18
qoq growth
42,084 23,874 18,210 4.00 11,876 30,086 13,751 4,450 9,300 16,335 2938 18.0 13,398 4,597 34.3 8801 5,989 14.7 1231808 1414406 87 13452.8 1.1 5,368.9 0.4 15.6
34,857 20,254 14,603 4.00 9,704 24,307 11,491 3,758 7,733 12,817 2139 16.7 10,678 3,635 34.0 7043 5,969 11.8
20.7 17.9 24.7 0.0 22.4 23.8 19.7 18.4 20.3 27.5 37.3 1.3 25.5 26.4 0.3 25.0 0.3 24.6
41,355 23,615 17,741 4.00 11,673 29,413 13,528 4,222 9,306 15,885 3100 19.5 12,786 4,420 34.6 8366 5,985 14.0
1.8 1.1 2.6 0.0 1.7 2.3 1.6 5.4 ‐0.1 2.8 ‐5.2 ‐1.5 4.8 4.0 ‐0.3 5.2 0.1 5.1
989491 1123133 88 8990.1 0.9 3,691.6 0.4 15.3
24.5 25.9 ‐1.0 49.6 0.2 45.4 0.1 2.0
1164070 1336730 87 12716.8 1.1 5,082.6 0.4 16.2
Source: Company, PhillipCapital India Research
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
5.8 5.8 0.0 5.8 0.0 5.6 0.0 ‐3.4
INDUSIND BANK QUARTERLY UPDATE
Financials Income Statement
Valuation Ratios
Y/E Mar, Rs mn Interest on Loans Interest on Investments Others Total Interest Earned Total Interest Expended Net Interest Income Total non interest income Total Income Personnel Expenses Other Expenses Total Op expenses Net Inc (Loss) before prov Provision and contingencies Net Inc (Loss) before tax Provision for Income Tax Net Profit
FY16 92,446 18,485 3,506 115,807 70,641 45,166 32,970 78,135 12,361 24,360 36,721 41,414 6,722 34,693 11,828 22,865
FY17 114,791 24,669 4,597 144,057 83,431 60,626 41,715 102,341 15,210 32,621 47,831 54,510 10,913 43,597 14,918 28,679
FY18e 143,489 28,123 5,240 176,852 99,154 77,698 51,542 129,240 19,165 39,234 58,399 70,841 12,432 58,409 19,976 38,433
FY19e 177,926 32,060 5,974 215,960 117,898 98,061 64,300 162,362 24,148 48,356 72,503 89,858 14,395 75,463 25,808 49,655
FY16
FY17
FY18e
FY19e
Cash & Bal with RBI
101,119
186,283
214,225
246,359
Loans, Adv & Int accrued
884,193 1,130,805 1,437,142
1,826,506
Investments
Balance Sheet Y/E Mar, Rs mn Assets
350,169
376,196
450,114
Fixed Assets (Net)
12,553
13,352
15,355
17,658
Other assets
80,935
79,849
83,981
83,547
1,428,970 1,786,484 2,200,817
2,713,289
Total Assets
539,209
Liabilities Share capital Reserves and Surplus
5,950
5,982
5,982
5,982
167,065
196,582
229,970
273,858
3,089
0
5,000
7,000
Borrowing
246,870
214,537
225,264
236,527
Total Deposits
937,895 1,275,198 1,614,561
2,040,652
Debt
Other liab incld prov Total Liabilities
64,156
80,288
96,345
115,614
1,428,970 1,786,484 2,200,817
2,713,279
Source: Company, PhillipCapital India Research Estimates
FY16 Earnings and Valuation Ratios Pre‐provision Operating RoAE (%) RoAE (%) Pre‐provision Operating ROA (%) RoAB (%) EPS (Rs.) Dividend per share (Rs.) Book Value (Rs.) Adj BV (Rs.) Revenue Analysis Interest income on IBA (%) Interest cost on IBL (%) NIM on IBA / AWF (%) Core fee Inc / AWF (%) Portfolio gains / Total Inc (%) Op.Exp / TI (%) Op.Exp / AWF (%) Employee exps / Op exps (%) Tax / Pre‐tax earnings (%) Asset Quality GNPAs / Gr Adv (%) NNPAs / Net Adv (%) Growth Ratio Loans (%) Investments (%) Deposits (%) Networth (%) Net Int Income (%) Non‐fund based income (%) Non‐Int Exp (%) Profit Before Tax (%) Net profit (%) Asset / Liability Profile Avg CASA/ Deposits (%) Avg Adv / Avg Dep (%) Avg Invst / Avg Dep (%) Incr Adv / Deposits (%) Avg Cash / Avg Dep (%) Capital Adequacy Ratio: Tier I (%) CET I (%) NNPAs to Equity (%)
Page | 3 | PHILLIPCAPITAL INDIA RESEARCH
FY17
FY18e
FY19e
29.2 28.4 31.8 34.4 16.1 15.0 17.2 19.0 3.3 3.4 3.6 3.7 1.92 1.89 2.03 2.11 38.4 47.9 64.3 83.0 5.0 6.0 7.0 8.0 297.4 345.2 400.6 473.9 285.6 331.6 384.8 455.2 19.8% 19.0% 29.3% 31.6% 9.7 9.5 9.3 9.2 6.6 6.2 5.9 5.6 3.8 4.0 4.1 4.2 2.4 2.5 2.6 2.6 6.0 3.5 2.5 1.9 49.8 48.4 46.3 45.5 3.1 3.2 3.1 3.1 33.7 31.8 32.8 33.3 34.1 34.2 34.2 34.2 0.9 0.9 1.1 1.2 0.4 0.4 0.4 0.4 28.5 27.9 27.1 27.1 40.9 7.4 19.6 19.8 26.5 36.0 26.6 26.4 66.0 16.7 16.1 18.3 32.1 34.2 28.2 26.2 36.9 33.7 26.6 26.7 34.7 30.3 22.1 24.2 28.1 25.7 34.0 29.2 27.5 25.4 34.0 29.2 34.6 35.9 36.8 37.4 92.8 90.2 88.0 88.2 35.7 32.8 28.6 27.1 99.9 73.1 90.3 91.4 12.4 13.0 13.9 12.6 15.5 15.3 15.3 15.5 14.9 14.7 14.8 14.9 14.9 14.0 13.6 13.5 1.8 2.1 2.4 2.7
INDUSIND BANK QUARTERLY UPDATE
Stock Price, Price Target and Rating History 1700
B (TP 1660)
1500
1300
B (TP 1390) B (TP 1390) B (TP 1344)
1100 B (TP 1150)B (TP 1150) B (TP 1150)
B (TP 1150)
B (TP 950)
900
N (TP 650)
700 N (TP 540) 500
300 J‐14 A‐14 S‐14 N‐14 J‐15 F‐15 M‐ M‐ J‐15 A‐15 S‐15 N‐15 D‐15 F‐16 M‐ M‐ J‐16 J‐16 S‐16 O‐16 D‐16 J‐17 M‐ A‐17 J‐17 15 15 16 16 17
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition BUY
>= +15%
Target price is equal to or more than 15% of current market price
NEUTRAL
‐15% > to
