While IndusInd Bank posted better than anticipated results for the quarter ended March 31, beating analysts’ earnings estimates by around five per cent, longer-term concerns such as margin contraction will continue to weigh on the stock in the medium term.
Analysts believe the current valuations of 17-18 times 2011-12 earnings per share (EPS) and three times the 2011-12 book are high, but given the strong growth potential, most brokerages are bullish on the stock.
The bank’s loan book growth is expected to remain robust at a 30 per cent compounded annual growth rate over FY11-13, driven by expansion in current and saving account (CASA) ratio. Its net interest margins (NIMs) are expected to be under pressure in the near term due to limited pass through effect in a rising deposit rates scenario. While entry into newer segments such as used vehicles and credit cards would aid revenue growth, the slippages will be under northward pressure, given the high risk inherent in these segments.
| HEALTHY GROWTH | |||
| In Rs crore | FY11E | FY12E | FY13E |
| Net interest income | 1,377 | 1,848 | 2,445 |
| % chg y-o-y | 55.3 | 34.2 | 32.3 |
| Net interest margin (%) | 3.57 | 3.73 | 3.86 |
| Chg in bps | 56 | 16 | 13 |
| Net profit | 577 | 790 | 1,050 |
| % chg y-o-y | 64.8 | 36.9 | 32.8 |
| Price/Book value (x) | 3.3 | 2.8 | 2.4 |
| E:Estimated; Source: HSBC Report | |||
For the fourth quarter, the bank registered net interest income (NII) of Rs 388 crore, up 42.3 per cent over the same quarter last year. The net profit Rs 172 crore, up 75.3 per cent on a year-on-year (y-o-y) basis. Botttom-line growth was fuelled primarily by firm NIMs, better cost efficiency, and lower credit costs. NIMs slipped a marginal 11 basis points (bps) to 3.50 per cent versus 3.61 in the previous quarter.
LOAN GROWTH IN LINE, FEE INCOME UP
Advances grew 27 per cent y-o-y to Rs 26,166 crore, powered by a 40 per cent growth each in the retail and auto loans portfolio. Corporate loans formed 56 per cent of the bank’s overall portfolio in 2010-11 as against 60 per cent in 2009-10 and also witnessed lower slippages. Casa improved further, by 40 basis points to 27.2 per cent. Cost-income ratio for the quarter fell to 47.7 per cent from 50.5 per cent a year ago. The impact of rising deposit costs (85 bps) on the NIMs was offset largely by higher yields in both corporate as well as retail loans, which increased by 84 bps and 28 bps, respectively on a sequential basis. Fall in slippages by 60 bps sequentially to 0.9 per cent reflected positively on the asset quality. The net non-performing assets (NPAs) dipped to 0.28 per cent from 0.36 per cent in the December quarter. Non-interest income grew impressively by 37 per cent y-o-y to Rs 182 crore, led by core fee income growth. The bank added 90 branches in 2010-11 taking total branch count to 300. The capital adequacy ratio was a healthy 15.9 per cent, up 56 basis points y-o-y.
THE DEUTSCHE BANK DEAL
Last week, IndusInd announced the buyout of Deutsche Bank’s credit card business for an undisclosed amount. However, analysts believe the acquisition is done at a minor premium to its outstanding loans of Rs 220 crore, making the deal expensive. The management is eyeing close to four-five per cent of total revenues from this business in the next few years. Also, it will double the total cards tally to 0.5 million over the next three years.