EUR 120.00 For Business Accounts Only

MOSL: IndusInd Bank (Buy)-Slippages weigh heavy on strong operating performance

(IIB IN, Mkt Cap USD14.5b, CMP INR1481, TP INR1720, 16% Upside, Buy)

PPoP in-line; credit cost to stay elevated
** IIB’s third-quarter result mirrored overall slowdown in the economic environment, which continues exerting pressure on asset quality. While the operating performance was healthy (NII, margins, business growth, particularly deposits/PPoP), higher slippages remain a drag and also a reason for investor caution in a period of management transition.

** We cut our EPS estimate for FY20/21 by 6%/3%, primarily as we factor in our assumption of higher credit cost and slippages. Maintain Buy.

Higher provisions drag earnings; slippage trajectory remains elevated
** PAT of INR13b (+33% YoY) came in lower than our estimate of INR15b owing to higher provisions of INR10.4b as the bank created accelerated provisions of INR2.5b. NII was up 34% YoY at INR30.7b (3% beat) as margins expanded 5bp QoQ to 4.2%. PPoP increased 30% YoY to INR27.6b (in-line).

** Loan growth moderated to 20% YoY, led by slowdown in the CV and corporate portfolios. Deposits were up 23% YoY, led by a 30% YoY increase in SA deposits (+12% QoQ). CASA mix thus improved by 100bp QoQ to 42.4%, despite a slight moderation in current account deposits.

** Fresh slippages were up to INR19.5b, resulting in a 4.8% QoQ increase in GNPA, while higher provisions led to a 1.3% QoQ decline in NNPA. PCR improved ~290bp QoQ to ~53%. Exposure to three stressed groups declined to 0.47% of loans (2QFY20: 1.1%).