MOSL: INDUSIND BANK (Buy)-Strong core operating performance, asset quality deteriorates slightly

IndusInd Bank: Strong core operating performance, asset quality deteriorates slightly

(IIB IN, Mkt Cap USD15.7b, CMP INR1699, TP INR2076, 22% Upside, Buy)

• IndusInd Bank's (IIB) 3QFY18 PAT grew 25% YoY (in-line) to INR9.4b. NII grew 20% YoY, led by robust advances growth of 25% YoY, even as calculated NIM shrunk 15bp YoY (reported NIM was flat YoY at 3.99%).
• Total income grew 18.7% YoY due to relatively low other income growth, as treasury gains were muted with increasing yields. However, controlled opex growth of 15% YoY (CI ratio declined 150bp YoY to 46%) led to PPoP growth of 2%/22% QoQ/YoY.
• Robust advances growth (25% YoY) was driven by 26% YoY corporate book growth; retail book grew 24% YoY, led by healthy growth in tractors (+42% YoY), credit cards (+55% YoY) and equipment finance (+29% YoY). Retail book stood at 41.3% of advances.
• GNPA/NNPA increased 11%/10% QoQ to INR15b/5.9b; however, in percentage terms, GNPA/NNPA increased 8bp/2bp QoQ to 1.16%/0.46%, as the bank utilized INR700m of floating provisions created in 1QFY18 to improve PCR to 60.5%. Slippages moderated to 1.6% (annualized) from 2% in the previous quarter.
• Other highlights: (1) Robust CASA accretion continued, with 68% SA growth and 42% CASA growth (CASA ratio at 42.9%). (2) CET1/Tier 1 ratio stood at 14.07%/15.83%. (3) The bank is yet to receive FY17 divergence numbers from the RBI, as the audit has been completed at the end of Dec '17.