IndusInd Bank appears to have convinced analysts with its second quarter earnings performance with brokerage Edelweiss Securities recommending its clients to "buy" shares of the mid-sized private sector lender.
On Wednesday, IndusInd Bank reported 30 per cent year-on-year rise in its July-September net profit primarily on account of strong growth in fee income. The lender's core fee income grew by 40 per cent during the quarter.
"Growth momentum continued on regular fee flows with the loan processing fee coming in at Rs 56 crore, up 10 per cent quarter-on-quarter. Trade and foreign exchange income grew 31.3 per cent. This together with a robust investment banking fee led to a strong core fee income growth," Nilesh Parikh, analyst with Edelweiss Securities, said in his note to clients today.
The brokerage expects the management's increased focus on fee generation will lead to 30 per cent compound annual growth rate (CAGR) between 2011-12 and 2013-14. "This will further enhance the return on asset to 1.7 per cent by 2013-14," Parikh said.
"Since management change, market has consistently rewarded IndusInd Bank for the consistent delivery on improvement in profitability metrics – return on asset and return on equity. As the puts the capital to good use, we believe it will be able to ramp up return on equities to pre-capital raising levels in 4-5 quarters. Also, improving liability franchise and above average earnings growth at strong return ratios will ensure that IndusInd Bank will be able to bridge the gap in discount to HDFC Bank," he added.
At 1:58PM, IndusInd Bank shares were at Rs 365.40 on the National Stock Exchange (NSE), up 2.2 per cent from previous close.