EUR 120.00 For Business Accounts Only

MOSL: INDUSIND BANK (Buy)-Liability franchise strengthening; loan growth gains traction

INDUSIND BANK: Liability franchise strengthening; loan growth gains traction

(IIB IN, Mkt Cap USD12.6b, CMP INR1212, TP INR1400, 15% Upside, Buy)

 

• IIB's consistent efforts in strengthening its liability franchise have been yielding results. After witnessing a sharp run down in deposits over Mar'20, the management has increased its focus on garnering Retail deposits. The same has grown by 59% YoY in Sep'21, while the mix as per LCR disclosures rose 980bp YoY to 41%.
• Loan growth over the past few quarters have been modest due to a challenging business environment and weak demand as the Corporate book witnessed a decline over FY21. However, the bank is witnessing a healthy recovery as it reported a QoQ growth of ~5% over 2QFY22. An improving CV cycle/demand outlook would keep the momentum healthy. We expect 17% loan CAGR over FY21-24E.
• The overall risks to asset quality are diluting. While provisioning is likely to continue, as IIB would provide for MFI/restructuring and is looking to set up contingency for its IDEA exposure, we expect credit cost to moderate gradually to 1.8% by FY24E and GNPA/NNPA to moderate to 1.8%/0.5% by FY24E.
• The IIB stock has delivered a healthy (24%) return over the past two months, owing to abating concerns around asset quality and improving business/demand outlook. Asset quality pressure is likely to remain in the near term. However, healthy PCR at 72% and provisions buffer of 1.4% of loans provide comfort. We expect a RoA/RoE of 2.0%/16.7% in FY24E. We maintain our Buy rating with a TP of INR1,400/share (1.9x 1HFY24E ABV).