 "Uptick in vehicle financing, retail focus to boost IndusInd Bank's prospects")
Strong corporate loan growth, stable margins, and asset quality outlined IndusInd Bank’s results for the December quarter, which were in line with Street estimates. Although loan book growth at 22 per cent year-on-year (y-o-y) was slightly lower than the 24 per cent posted a year ago and the management’s own expectations, it is commendable, given the weak environment.
While corporate loans, three-fifths of total loans, led loan book growth and were up 32 per cent, a mere 10 per cent y-o-y growth in retail loans restrained the overall loan book growth. Vehicle financing (a third of retail book) has witnessed flattish to negative loan growth over the past few quarters.
Overall, net interest income grew 18 per cent to Rs 861 crore, compared to a year ago, while core fee income grew 22 per cent to Rs 522 crore, driven by robust growth in distribution fees on increased demand for mutual fund products.
Lower cost of funds and a higher Casa (current and savings account) ratio aided net interest margin in the quarter, which inched up four basis points y-o-y to 3.67 per cent. Provisions fell 22.3 per cent y-o-y to Rs 98 crore, further pushing net profit that stood at Rs 447 crore, up 28.9 per cent and in line with the Bloomberg expectation of Rs 449 crore.
The retail segment has started seeing some uptick in the past few days, especially commercial vehicles (16 per cent of the retail book). This trend is likely to be sustained in the seasonally strong March quarter. While more clarity will emerge by the June quarter, the bank plans to increase retail contribution to the total loan book to 50 per cent, from 42 per cent.
According to Tuesday's closing price, IndusInd trades at 3.6 times the FY16 estimated book value, which is at a 35 per cent premium to its historical average one-year forward price/book ratio of 2.7 times. However, part of this premium appears justified, as the bank is expected to post earnings CAGR of 25 per cent over FY14-17.
While corporate loans, three-fifths of total loans, led loan book growth and were up 32 per cent, a mere 10 per cent y-o-y growth in retail loans restrained the overall loan book growth. Vehicle financing (a third of retail book) has witnessed flattish to negative loan growth over the past few quarters.
Overall, net interest income grew 18 per cent to Rs 861 crore, compared to a year ago, while core fee income grew 22 per cent to Rs 522 crore, driven by robust growth in distribution fees on increased demand for mutual fund products.
Lower cost of funds and a higher Casa (current and savings account) ratio aided net interest margin in the quarter, which inched up four basis points y-o-y to 3.67 per cent. Provisions fell 22.3 per cent y-o-y to Rs 98 crore, further pushing net profit that stood at Rs 447 crore, up 28.9 per cent and in line with the Bloomberg expectation of Rs 449 crore.
The retail segment has started seeing some uptick in the past few days, especially commercial vehicles (16 per cent of the retail book). This trend is likely to be sustained in the seasonally strong March quarter. While more clarity will emerge by the June quarter, the bank plans to increase retail contribution to the total loan book to 50 per cent, from 42 per cent.
According to Tuesday's closing price, IndusInd trades at 3.6 times the FY16 estimated book value, which is at a 35 per cent premium to its historical average one-year forward price/book ratio of 2.7 times. However, part of this premium appears justified, as the bank is expected to post earnings CAGR of 25 per cent over FY14-17.