Q2. FY17. Q3. FY17. 11734. 12682. 13564. 14600. 15784. NET INTEREST INCOME (Rs. In Mn). Whoops! There was a problem load
BUY SUHANI ADILABADKAR RESEARCH REPORT
Q3 FY17
INDUSIND BANK LTD QUARTERLY OUTLOOK & RECOMMENDATION
INDUSIND BANK diminished all fears of demonetization impact with its usual double digit growth numbers for December quarter FY17. The banking stock jumped 6%, after its quarterly results announcement seeped in the market exhibiting all round growth in every segment with Net Interest Margin (NIM) well maintained at 4%, Net Interest Income rising at 35%and PAT growth at 29% YOY in the current December quarter. Net Interest Income, difference between interest earned and expended was at Rs. 15784 Mn in Q3 FY17against Rs. 11734 Mn same period previous year. Net Profit followed suit rising 29% YOY at Rs. 7506 Mn in the current quarter compared to Rs. 5810 Mn corresponding quarter previous year. Asset quality seems stable with Gross NPAs and Net NPAs at 0.94% and 0.39% in Q3 FY17. Provisions & contingencies increased 1.4% QOQ, though YOY rise has been 22% in present quarter. Double digit growth rate is visible in both Corporate & Retail business segments, though corporate out-paced retail yet again growing at a whopping 43% YOY. Retail on the other hand reported 18% yearly growth in Q3 FY17. Low cost funding or CASA ratio was another star performer for the bank galloping at 210 basis points YOY at 37.10% supported by savings accounts rising 22% quarterly and 56% on yearly basis. In absolute terms CASA rose 46% YOY at Rs. 441620 Mn. Other income which accounts 22% of total income for the bank climbed 21% YOY in Q3 FY17 and stood at Rs. 10168 Mn. Growth momentum continued for core fee with yearly growth of 22% at Rs. 8848 Mn. Deposits grew at a higher rate of 38% compared to Advances rising at 25% YOY. Indian economy’s strong fundamentals, favorable government policies, GST implementation is going to benefit the banking sector as a whole. INDUSIND growth story is intact and offers optimal option for value investors. IndusInd bank with CAR of 15.31% (Tier I14.74%), credit growth rate above industry average, growing profitability and stable asset quality is poised for high growth as one of the major players in Indian banking industry. Thus we recommend BUY for the stock for medium and long term investment.
CMP
Rs. 1213.95
TARGET
Rs. 1350.00
SECTOR
BANKING
SCRIP 532187 CODE FACE 10.00 VALUE MARKET Rs.725238 Mn CAP 52 WEEK Rs. 1255.30/799.00 HIGH/LOW SHAREHOLDING PATTERN (%) 16.66 PROMOTER 83.34 PUBLIC OTHERS 100.00 TOTAL Q3 FY17 Q3 FY16 CHN% In Mn NII
15784
11734
35%
NIM
4%
3.91%
9 BP
PAT
7506
5810
29%
EPS
12.56
9.79
28%
FY16A
FY17E
FY18E
NII
45165.70
60524.91
70280.47
PAT
22864.50
29044.70
34106.68
EPS
38.43
48.62
57.09
PE
31.59
24.97
21.26
In Mn
INDUSIND BANK V/S S&P BSE SENSEX
PERFORMANCE METRICS (December Quarter FY17) Profitability Analysis PROFIT AFTER TAX (Rs. In Mn)
NET INTEREST MARGIN 4.02%
8000
7043 6614
7000 6000
7506
5810
4.00%
4.00% 3.98%
6204
4.00%
3.97% 3.94%
3.96%
5000
3.94% 3.91%
4000
3.92%
3000
3.90%
2000
3.88%
1000
3.86% 3.84%
0 Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
IndusInd Bank reported stellar third quarter FY17 numbers with PAT and NII both rising by 29% and 35% YOY respectively. Sequential growth was also strong at 7% & 8% for PAT and NII at Rs. 7506 Mn and Rs. 15784 Mn in the current quarter compared to Rs. 7043 Mn and Rs. 14600 Mn respectively in the previous September quarter. Net Interest Margin at 4% was well maintained with a 9 basis point jump YOY. Though constant in the current quarter, NIM has been rising sequentially by a constant 3 bp over the previous four quarters. Other Income contributing 22% of the total income increased 21% YOY at Rs. 10168 Mn compared to Rs. 8390 Mn in the corresponding quarter previous year. Sequentially, it rose 5% after being stagnant in the previous September quarter. Core fee, major contributor of other income rose 22% YOY and stood at Rs. 8848 Mn compared to Rs. 7259 Mn, same period previous year with QOQ jump of 7% in the current December quarter. Except FX income & Loan processing fees, all components of core fee rose in double digits. Distribution fees reported highest growth rate of 44% YOY in the current Q3 FY17.
Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
NET INTEREST INCOME (Rs. In Mn) 15784 16000 14600 13564
14000 12000
12682 11734
10000 8000 6000 4000 2000 0 Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
OTHER INCOME (Rs. In Mn)
CORE FEE (RS. IN MN)
Q3 FY17
Q3 FY16
CHG
Trade & Remittance
1061.40
850.50
25%
8000
Foreign Income
1793.00
1701.40
5%
6000
Distribution Fees
1812.40
1259.90
44%
General Banking Fees
636.80
462.90
38%
Loan Processing Fees
1946.20
1854.40
5%
Investment Banking
1598.60
1129.90
41%
12000 10000 8390
9128
9730
9704
10168
4000
Exchange
2000 0 Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Segment Revenue Analysis
Segment Revenue (Rs. In Mn)
Q3 FY17
Q3 FY16
CHG
Treasury
8254.30
7603.80
8.55%
REVENUE COMPOSITION
Retail 49%
Corporate
17042.20
11924.80
42.91%
Retail
24519.50
20745.40
18.19%
Other Banking Business
90.80
120.80
-24.83%
Corporate 34%
49%
Treasury 17% Other Banking 0.0002%
All revenue segments except Other Banking Business segment reported positive growth YOY. Other banking business which has the lowest contribution to total revenues de-grew by 25% YOY and 3% sequentially. Corporate segment was the star performer and witnessed strong growth both yearly and quarterly at 43% & 11% respectively indicating strong revival. With respect to retail, though QOQ growth at 6% was relatively slow, yearly rise was strong at 18% contributing 49% of the total revenues. Treasury segment jumped 9% on yearly basis and 4% sequentially. Demonetization drive of the government did not have much impact on the bank’s revenues and both retail and corporate loan book have reported strong
double digit numbers. On the other hand, CASA ratio has improved further which will be favorable as rise in CASA deposits will strengthen lending ability of the bank in the long run..
Asset Quality Analysis
PROVISIONS (Rs In Mn) ASSET QUALITY
Q3 FY17
Q3 FY16
CHN 2500
2305 2137
Gross NPAs
0.94%
0.82%
12 bp
2000
2139
2169
1771
1500
Net NPAs
0.39%
0.33%
6 bp
1000
500
Provisions & Contingencies
2168.50
1770.80
22.46%
0 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Asset quality for the bank has deteriorated mildly as GNPAs & NNPAs ratios jumped both yearly and QOQ. On sequential basis, GNPAs and NNPAs increased 4 & 2 basis points respectively. Two wheelers constitute the biggest chunk, 3.60% of GNPAs in consumer finance segment but improved by 2 basis points QOQ followed by credit cards at 1.62%. Consumer Finance Segment constitutes 42% of the total loan book and accounted for 1.16% of the total GNPAs. Total Gross NPAs stood at Rs. 9716 Mn against Rs. 6811 Mn same period previous year. NNPAs were reported at Rs. 4007 Mn against Rs. 2733 Mn corresponding quarter previous year. Increase in absolute terms for Gross and Net NPAs on yearly basis was 43% and 47% respectively, whereas sequential absolute growth was 8% for both in Q3 FY17.Provisions & Contingencies increased QOQ by 1.40% whereas on yearly terms, provisions jumped 22% from Rs. 1771 Mn in Q3 FY16 to Rs. 2169 Mn in the current December quarter. Restructured advances stood at 0.41% in Q3 FY17 compared to 0.44% in the previous September quarter. Provision coverage ratio was constant at 59% in the current December quarter.
GNPAs AS A % OF GROSS ADVANCES 0.96
0.94
0.94
0.91
0.92
0.90
0.87
0.9 0.88 0.86 0.84
0.82
0.82 0.8 0.78 0.76 Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Business Growth Analysis Low cost funding or CASA ratio zoomed 210 basis points YOY and 60 basis points on sequential basis. In previous September quarter, current accounts contributed the most to the rise in CASA ratio growing 28% QOQ whereas Q3 FY17 reported negative growth of 7% as demonetization drive led to jump in savings deposits which have risen 56% YOY. Sequentially, the jump is also in double digits, whopping 22% for saving accounts. Current Accounts stood at Rs. 189870 Mn in the current quarter compared to Rs. 141070 Mn same period previous year. Savings accounts stood at Rs.251750 Mn against Rs. 161250 Mn in Q3 FY16. CASA on the whole in absolute terms jumped 46% YOY from Rs. 302320 Mn to Rs. 441620 Mn in the current December quarter. The bank has been building on CASA focusing on government business, capital market flows, key non-resident markets, self employed & emerging corporate businesses and transaction banking & CMS mandates. IndusInd bank has added 40 new branches this quarter taking the total number of branches to 1,075 and 1,960 ATMs as on st December 31 , 2016 as against 905 Branches and
1,621 ATMs same period previous year.
CASA RATIO 37.50%
37.10%
37.00% 36.50%
36.50%
36.00% 35.50%
35.20%
35.00% 35.00% 34.50% 34.40%
34.00% 33.50% 33.00% Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
ADNANCES & DEPOSITS (Rs. In Mn) 1400000 1200000 864230
1000000 800000
821670
600000
930000 884190
1192180
1123133
1017680
936780
989491
1027700 Advances
400000
Deposits
200000 0 Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Deposits grew at a higher sequential growth rate of 6% compared to Advances which rose at 4% in the present December quarter. Deposits also out- paced Advances in the current quarter zooming at 38% YOY whereas Advances grew at 25% YOY. Deposits have been exhibiting strong growth over the previous three quarters and stood at Rs. 1192180 Mn in Q3FY17. Corporate Loan book stood at Rs. 599050 Mn which comprised 58% of the total loan book and has the highest exposure in gems & jewelry segment at 5.96%, though it has been reduced from 6.15% previous September quarter. Retail or Consumer finance comprised 42% of the total loan book at Rs. 428650 Mn with commercial vehicles accounting for the major chunk, 14% of the total loan book. Retail Vehicle finance segment reported 21% YOY growth whereas Retail Non Vehicle finance grew 42% in the current December quarter. Quarterly growth was also higher for Retail Non Vehicle finance at 8% and 5% for Retail Vehicle finance.
CORPORATE LOAN BOOK
Q3 FY17
Q2 FY17
Change%
Gems & Jewellery
5.96%
6.15%
-0.19%
Lease Rental
5.05%
4.63%
0.42%
Real estate
2.24%
2.41%
-0.17%
NBFCs
2.56%
2.61%
-0.05%
Telecom- Cellular
3.84%
4.00%
-0.16%
Constn related to infra – EPC
1.25%
1.49%
-0.24%
Housing Finance Companies
1.64%
1.64%
0.00%
Power Generation
1.77%
1.73%
0.04%
Contract Construction- civil
1.15%
1.24%
-0.09%
Media, Entertainment & Adv
1.30%
1.49%
-0.19%
Services
1.33%
1.27%
0.06%
Steel
2.02%
1.80%
0.22%
Other Industry
26.99%
28.56%
-1.57%
Food Beverages & Food Processing
1.17%
-
nil
Corporate Profile IndusInd Bank, which commenced operations in 1994, caters to the needs of both consumer and corporate customers. Its technology platform supports multi-channel delivery capabilities. As on December 31st, 2016, IndusInd Bank has 1075 branches, and 1960 ATMs spread across 625 geographical locations of the country. The Bank also has representative offices in London, Dubai and Abu Dhabi. The Bank believes in driving its business through technology. It enjoys clearing bank status for both major stock exchanges - BSE and NSE - and major commodity exchanges in the country, including MCX, NCDEX, and NMCE. IndusInd Bank on April 1 st, 2013 was included in the NIFTY 50 benchmark index. On June 28, 2016, IndusInd Bank has commenced operations in International Finance Service Centre (IFSC) Banking Unit in Gujarat International Finance Tec City (GIFT).
Financial Analysis QUARTERLY PROFIT & LOSS STATEMENT OF INDUSIND BANK LTD FROM 30th June 2016 TO 31st March 2017E VALUE
30-June-16
30-Sep-16
31-Dec-16
31-March-17E
Rs. In Million
3 months
3 months
3 months
3 months
INTEREST EARNED
32916.90
34693.00
36993.30
38842.97
OTHER INCOME
9729.70
9704.20
10168.00
10778.08
TOTAL INCOME
42646.60
44397.20
47161.30
49621.05
INTEREST EXPENDED
-19352.70
-20089.90
-21209.10
-22269.56
PROFIT BEFORE OP EXP & PROVISIONS
23293.90
24307.30
25952.20
27351.49
OPERATING EXPENSES
-10956.00
-11490.80
-12318.80
-13057.93
OPERATING PROFIT
12337.90
12816.50
13633.40
14293.56
PROVISIONS
-2304.70
-2138.80
-2168.50
-2255.24
PROFIT BEFORE TAX
10033.20
10677.70
11464.90
12038.32
TAX
-3419.40
-3635.10
-3958.50
-4156.43
PROFIT AFTER TAX
6613.80
7042.60
7506.40
7881.90
EQUITY CAPITAL
5958.70
5969.20
5974.20
5974.20
FACE VALUE
10.00
10.00
10.00
10.00
EPS
11.10
11.80
12.56
13.19
ANNUAL PROFIT & LOSS STATEMENT OF INDUSIND BANK LTD FROM 2015 TO 2018E VALUE
31- Mar-15
31- Mar-16
31- Mar-17E
31-Mar-18E
Rs. In Million
12 months
12 months
12 months
12 months
INTEREST EARNED
96919.70
118717.40
143610.47
160843.72
OTHER INCOME
25480.00
32969.50
40379.98
46840.78
TOTAL INCOME
122399.70
151686.90
183990.45
207684.50
INTEREST EXPENDED
-62716.90
-73551.70
-83085.56
-90563.25
PROFIT BEFORE OP EXP & PROVISIONS
59682.80
78135.20
100904.89
117121.24
OPERATING EXPENSES
-28700.60
-36721.00
-47823.53
-55953.53
OPERATING PROFIT
30982.20
41414.20
53081.36
61167.71
PROVISIONS
-3890.50
-6721.60
-8867.24
-10374.67
PROFIT BEFORE TAX
27091.70
34692.60
44214.12
50793.04
TAX
-9154.50
-11828.10
-15169.43
-16686.37
PROFIT AFTER TAX
17937.20
22864.50
29044.70
34106.68
EQUITY CAPITAL
5294.50
5949.90
5974.20
5974.20
RESERVES
97240.80
167202.20
196246.90
230353.57
FACE VALUE
10.00
10.00
10.00
10.00
EPS
33.88
38.43
48.62
57.09
BALANCE SHEET FROM 2015 TO 2018E CAPITAL & LIABILITIES (Rs. In Mn)
2015
2016
2017E
2018E
CAPITAL
5294.50
5949.86
5974.20
5974.20
EMPLOYEE STOCKOPTIONS OUTSTANDING
140.53
137.66
154.46
162.18
RESERVES & SURPLUS
101010.31
170872.23
196246.90
230353.57
DEPOSITS
741343.64
930003.46
1209004.50
1474985.49
BORROWINGS
206180.56
221558.65
239283.34
253640.34
OTHER LIABILITIES & PROVISIONS
63904.17
72048.07
79973.35
86771.09
1117873.72
1400569.93
1730636.75
2051886.87
CASH & BALANCES WITH RBI
40351.43
45210.41
52218.02
57439.82
BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE
67439.99
55908.31
131384.53
144522.98
INVESTMENTS
228783.38
312143.15
368328.91
423578.25
ADVANCES
687881.99
884193.42
1066108.58
1305464.38
FIXED ASSETS
11575.77
12553.24
13431.97
14775.16
OTHER ASSETS
81841.16
90561.41
99164.74
106106.27
TOTAL ASSETS
1117873.72
1400569.93
1730636.75
2051886.87
TOTAL LIABILITIES ASSETS (Rs. In Mn)
Ratio Analysis YEAR
FY 15A
FY 16A
FY 17E
FY18E
33.88
38.43
48.62
57.09
NPM
14.65%
15.07%
15.79%
16.42%
BOOK VALUE
193.66
291.02
338.49
395.58
ROE
17.49%
13.20%
14.36%
14.43%
P/BV
6.27
4.17
3.59
3.07
PE
35.83
31.59
24.97
21.26
EPS
Comparative Analysis (Standalone) Q3 FY17
EPS
CAR
PAT (Rs. In Mn)
GNPA RATIO
MKT CAP (Rs. In Mn)
NIM
CASA RATIO
INDUSIND BANK
12.56
15.31%
7506.40
0.94%
725238.01
4.00%
37.10%
SOUTH INDIA BANK
0.82
11.05%
1113.80
3.98%
28792.00
2.66%
25.90%
Industry- Current Scenario Indian Banking Sector has been the bedrock of resilience against global volatility. With fiscal deficit & CAD in control, stable exchange rate and moderate inflation, India is poised for high sustainable growth. Indian banking system on its part has gone through various highs and lows over the last 10-12 years. Third & fourth quarters of FY16 for Indian banks especially PSU were marred by high provisions and losses due to cleaning up process directed by Reserve Bank Of India. PSU banks might be under stress for the next 3 -4 quarters whereas Private sector banks with low exposure to power & infrastructure sectors have fared well during financial crises since 2008. Though they have performed well during tough times buttressing banking services in urban and semi urban India, they have not remained unscathed by slowing Indian economy as witnessed by rising non-performing assets. Over the last one and a half years, domestic scenario has changed with more autonomy given to banks through Indradanush initiative undertaken by the government. In addition to that proactive policies have been undertaken by the central bank such as introduction of MCLR, addressing liquidity needs of the banking sector, tighter norms for willful defaulters and licenses given to small & payment banks. New MCLR base rate methodology adopted since 1st April 2016 is expected to lower lending rates buttressing the loan book of the banks leading to improved bottom-line and lower provisions. With the economy gaining momentum as exhibited by the latest GDP numbers, banking system needs to become agile to fulfill the requirements of both corporate and households. On the global front, US Fed tantrums, European sluggish economy, China’s decelerating growth have given enough challenges for our banking industry. But even in this uncertain volatile world economy, both public and private sector banks have worked together to strengthen our financial system and made India the only Brick left in the famed BRICS ellipsis.
OUTLOOK FOR THE BANK
IndusInd Bank has maintained its Net Interest Margin after touching an all time high of 4% in the previous September quarter. NIM represents operational efficiency and is undoubtedly the best among mid-sized private sector banks. Yearly jump has been 9 basis points in the current December quarter. Over the previous four quarters, the bank’s NIM has been above 3.90%.
High growth in Net Interest Income, above 35% yearly growth over the previous four quarters exhibits high operational efficiency and profitability. Net Interest Income has also grown above 7% every quarter over the previous four quarters.
IndusInd Bank’s Credit growth is mostly seen above industry average. The momentum has continued even in the present quarter. The yearly growth is 25% and average quarterly growth is around 6% over the previous 4 quarters.
Growth in Deposits picked up from Q3 FY16 and sequential growth has been above 7% every quarter. IndusInd Bank had been garnering deposits even before demonetization as June quarterly growth was 9.43% which was further accelerated to 10.40% in the previous September quarter. Thus quarterly growth was relatively lower at 6% in the current December quarter, though yearly growth was strong al 39% in Q3 FY17. Strong growth in both advances and deposits exhibits long term profitability and sustainability for the bank.
CASA stood at 37.10 % in the current December quarter, one of the best CASA ratios among midsized private sector banks. CASA ratio has jumped 210 basis points YOY and 60 basis points QOQ. The bank has added 40 new branches during the quarter taking its total branch network to 1075 which will further garner high deposits in the long term.
Corporate and Consumer Finance loan book have both grown by 25% YOY exhibiting no negative impact of demonetization. Commercial vehicles which constitute 14% of the loan book rose by 10% YOY in the current December quarter. The bank also has low exposure to stressed sectors such as power and infrastructure.
Asset quality seems to be stable as quarterly growth in provisions has been just 1.4% in current Q3 FY17. In absolute terms, provisions have increased by Rs.30 Mn QOQ and Rs. 398 Mn yearly. Gross and Net ratios look manageable with restructured assets at 0.41%.
Key drivers for the bank, double digit loan growth at 25%, high NIM at 4% and low nonperforming assets makes it one of the most promising midcap private sector banks. IndusInd bank has reported all round growth and is a double digit growth story for the long run. For retail investors, the bank is still fairly valued as per its fundamentals and we give a strong BUY recommendation for medium and long term with a target price of Rs. 1350.
SUHANI ADILABADKAR
[email protected] 9701063320
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