IndusInd Bank BRICS JAN 12

					Banks & Financials I December 2011 Quarter Review                            11 January 2012




IndusInd Bank                                                                           ADD
 Earnings largely in line, nothing to cheer about                              CMP: Rs262                  Target Price: Rs270

We were positively surprised by market’s reaction to IIB’s Q3FY12                    KEY DATA
earnings with the stock returning 6%+ on the day. As numbers were                    Bloomberg                                 IIB IN
                                                                                     Reuters                                INBK.BO
largely in line with expectations and an aggressive FY14 guidance
                                                                                     52-wk H/L (Rs)                          292/181
ismostly baked in the price, potential for sustained rally in the stock              6-m avg trd value                    US$3.1mn
looks limited near term. Still IIB managed to cheer the market with a                Market cap                    Rs121.8/US$2.3bn
strong revenue and bottomline growth helped by lower credit cost.                    Shares o/s                             466.7mn
Given how numbers stacked up, we increase EPS slightly for FY12/13                   Face value                                 Rs10
                                                                                    Source: Bloomberg
and raise 12-month forward price objective to Rs270 (from Rs255).
Maintain Add rating on the stock.                                                   SHAREHOLDING (%)

Increase FY12 and FY13 EPS estimates: We increased EPS estimates
for FY12 and FY13 by 4.6% and 3.9% respectively, driven by higher loan
growth and slightly lower credit cost assumption. We also increase our
risk-weight asset growth assumption given the FX/rate related derivative
(off-balance sheet) focus that drives client fee income for IIB.

CV business got most attention: CV business (23% of loan book)                      Source: CMIE           As of 31 Dec 2011

received most attention from the earnings call participants, considering the        RELATIVE PRICE PERFORMANCE
weak sentiment for the sector. We got back the oft-heard assurances like
– two-decade experience in CV financing business, financed mostly old
customers, improvement in freight rate and higher volume growth seen in
LCV for last mile connectivity. While we do not doubt any of these
positives, what came as a surprise was that off the incremental number of
vehicles financed in the current year, share of M&HCV was roughly 62%.
Further, while freight rate has improved, we are not sure if that is sufficient
to offset higher fuel costs. Added pressure point could be lending to               Source: Bloomberg
SRTOs, who we believe work with lesser cost efficiency than large fleet
                                                                                     Key financials                              (Rs mn)
operators in high interest rate, high operating cost environment.                    Y/E Mar                   FY11     FY12E     FY13E
Valuation: We value the stock at 2.53x Q3FY13 adjusted book (Rs106.7                 Net interest income      13,765    16,832    20,739
per share). The stock trades at 2.45x 1-year forward book and 14.2x                  EPS (Rs)                   12.9      16.7      19.3
twelve month forward EPS of Rs18.4. This compares to 2-year average                  NIM                        3.47      3.34      3.28
                                                                                     RoE                        19.3      17.7      17.6
forward book multiple of 2.7x and price to earnings multiple of 15.9x
                                                                                     P/ E (x)                   20.3      15.6      13.5
respectively. We believe much of the earnings upside is already baked in
                                                                                     P/adj. BV (x)               3.1       2.7       2.3
the price.
                                                                                     Source: Company, BRICS Research
Price target using blended valuation                                        (Rs)
                           Q3FY13    Multiple Valuation Probability   Value/share
                          estimate   assigned per share    assigned
Forward adj. book/share      106.7      1.97x       210        40%            84     Nilanjan Karfa
Forward EPS                   18.4      15.0x       277        30%            83     +91 22 66360075
                                                                                     nilanjan.karfa@bricssecurities.com
DCF valuation                                       342        30%           103
                                                                                     Murali Gopal
                                      Weighted valuation                      270    +91 22 66360049
Source: BRICS Research                                                               murali.gopal@bricssecurities.com
                                                                                     Jitendra Nikam
                                                                                     +91 22 66360097
                                                                                     jitendra.nikam@bricssecurities.com


BRICS Securities Limited
IndusInd Bank                                                                                       11 January 2012


                           Q3FY12 earnings summary

                           Topline remained strong: NII was in line with our expectation (0.9% higher). NII was
                           up 19% yoy and 3% qoq, although the bank felt the impact of higher interest expense
                           from higher CD rates towards the quarter end. This reflected in NIM that was down
                           10bps qoq to 3.25%. NII growth was mainly supported by higher loan growth.

                           Exhibit 1: How the NIM moved
                                                                         YoF                        CoF                     NIM

                                                       3.61%




                                                                                                                                  10.50%




                                                                                                                                                        10.48%
                                                                                    3.50%




                                                                                                      10.04%
                                    3.41%




                                                                           10.06%
                                                      9.32%
                                                                                                                3.41%
                                   8.84%


                                                                                                                                           3.35%
                                                                                                                                                         3.25%
                                           5.43%




                                                               5.53%




                                                                                      5.95%




                                                                                                                6.63%




                                                                                                                                            7.15%




                                                                                                                                                                 7.23%
                                   Q2FY11            Q3FY11                Q4FY11                     Q1FY12                   Q2FY12                   Q3FY12

                           Source: Company                    YoF=yield on funds CoF=cost of funds                      CoF calculated for Q3FY11 and Q4FY11


                           Non-interest income grew 35% yoy and 11% qoq. Of this, core fee income was the key
                           driver supporting revenue trend and was up 46% yoy and 18% qoq while trading
                           income was down. Within core fee income, investment banking revenue was down (as
                           expected), while all other line items reported strong growth. In particular, FX and
                           distribution fee was up 84% yoy and 65% yoy respectively.

                           Exhibit 2: Non-interest income break up                                                                                               (Rs mn)
                                                                            Q3FY12                   Q3FY11                  % yoy                  Q2FY12               % qoq
                           Fee income                                               2,503                 1,719                46%                   2,119                18%
                           Treasury Income                                           131                       240            -45%                     239                -45%
                           Other                                                       17                        1                 NA                   35                -51%
                           Source: Company

                           Exhibit 3: Core fee income break up                                                                                                   (Rs mn)
                                                                                     Q3FY12                    Q3FY11          % yoy                 Q2FY12              % qoq
                           Trade & remittances                                                332                    227             46%                 286              16%
                           Foreign exchange income                                            601                    327             84%                 523              15%
                           Distribution fees (Insurance, MF , Cr. Card )                      663                    402             65%                 571              16%
                           General banking fees                                               278                    184             51%                 269               4%
                           Loan Processing fees                                               416                    296             40%                 391               6%
                           Investment banking                                                 213                    283           -25%                     80           168%
                           Total core fee                                                2,503                  1,719                46%               2,119              18%
                           Source: Company


                           Operating expenses increased 29% yoy and 7% qoq and was largely in line with
                           expectation. Importantly, expense ratio was maintained below 50% (49.8% precisely)
                           v/s our expectation of 51%+, as we expected slight tempering in revenue.




BRICS Securities Limited                                                                                                                                                         2
IndusInd Bank                                                                                                          11 January 2012


                                               Exhibit 4: Expense ratio ticked up as top line growth was slightly muted
                                                                                                                                                                      49.8%
                                                                49.5%                                                                               49.4%




                                                                                                                                  48.5%
                                                                                  48.1%

                                                                                                     47.9%
                                                                                                                 47.7%


                                                           Q1FY11               Q2FY11              Q3FY11      Q4FY11            Q1FY12           Q2FY12          Q3FY12

                                               Source: Company


                                                Total provisions were down 24% yoy and in line with estimates, although credit cost fell
                                                further than expected. Net profit increased 34% yoy and 7% qoq.

                                                Balance sheet made new highs: Loans grew 29.7% yoy, of which wholesale book
                                                (CCB) was up 16% yoy while retail book (CFD) was up 48% yoy. The mix remained
                                                broadly flat with CCB at 52% of total loan book and balance was CFD at 48%.

                                                                          .
                                                Deposits were up 32.3% yoy. CASA ratio slipped 1.2% qoq to 26.5% v/s our
                                                expectation of 27.5%. Within CASA, the share of CA to total deposits dropped to
                                                16.7% v/s 19.1% in Q2FY12. We attribute this largely to strained liquidity position in the
                                                banking system and in line with our expectation. But SA share continues to improve
                                                and is at 9.8% v/s 8.6% in Q2FY12.

Exhibit 5: Loan growth holding up                                                                  Exhibit 6: CASA is stable, SA growth was strong
                                                                                                                       Demand             Saving            CASA ratio
                          Advances (% yoy)             Deposits (% yoy)
40%                                                                                                                                                28.2%      27.7%
                                                                                                                          26.8%      27.2%                                26.5%
                                                                                                       24.3%   25.4%
35%
                                                                                                                          8.4%       8.9%           9.2%      8.6%
30%                                                                                                    7.5%     7.5%                                                      9.8%

25%

20%                                                                                                    16.9%   17.9%      18.4%      18.3%         19.0%      19.1%       16.7%

15%
        Q3FY10


                 Q4FY10


                            Q1FY11


                                     Q2FY11


                                              Q3FY11


                                                       Q4FY11


                                                                    Q1FY12


                                                                             Q2FY12


                                                                                          Q3FY12




                                                                                                      Q1FY11   Q2FY11    Q3FY11     Q4FY11         Q1FY12    Q2FY12      Q3FY12

Source: Company                                                                                    Source: Company




BRICS Securities Limited                                                                                                                                                          3
IndusInd Bank                                                                  11 January 2012


                           Exhibit 7: Loan book break up                                                                 (Rs mn)
                                                                    Q3FY12        Q3FY11          % yoy       Q2FY12       % qoq
                           Consumer Finance                          156,950      105,730             48%     140,810        11%
                            Comm. vehicle loans                       74,620       51,860             44%      67,550        10%
                            Utility vehicle loans                     11,240        8,930             26%      10,100        11%
                            Three wheeler loans                       18,420       12,180             51%      16,970        9%
                            Two wheeler loans                         14,120       10,250             38%      12,890        10%
                            Car loans                                 12,200        7,210             69%      10,750        13%
                            Equipment financing                       19,650       13,690             44%      17,060        15%
                            Credit card                                2,340             -             NA        2,390       -2%
                            Other (Home, Personal)                     4,360        1,610             171%       3,100       41%
                           Corporate & Commercial Banking            167,310      144,280             16%     160,540        4%
                            C&I                                       91,090       79,790             14%      87,500        4%
                            Comm. banking                             47,730       45,140              6%      45,080        6%
                            Loan to small business                    28,490       19,350             47%      27,960        2%
                           Source: Company


                           Asset quality remained stable: Asset quality of the bank held up well. Gross NPA and
                           net NPA came down to 1.02% and 0.29% from 1.09% and 0.31% in Q2FY12
                           respectively. Provision coverage ratio remained at the same level of Q2FY12 at 72%.

                           Exhibit 8: Asset quality was stable
                                                     Gross NPA      Net NPA          Provision/avg. advances (RHS)
                             1.40%                                                                                        1.00%
                             1.20%
                                                                                                                          0.90%
                             1.00%
                             0.80%                                                                                        0.80%

                             0.60%                                                                                        0.70%
                             0.40%
                                                                                                                          0.60%
                             0.20%
                             0.00%                                                                                        0.50%
                                           Q3FY11          Q4FY11       Q1FY12               Q2FY12           Q3FY12

                           Source: Company


                           Profitability ratios: RoA remained at same level of Q2FY12 at 1.55% and RoE
                           improved to 19.12% vs 18.81 in Q2FY12.

                           Capital ratio: Including 9MFY12 profit, total capital ratio was 15.08% compared to
                           17.06% in Q3FY11. Tier I ratio is at 12.35%.




BRICS Securities Limited                                                                                                           4
IndusInd Bank                                                                                          11 January 2012


Exhibit 9: Profit & loss                                                                                                                         (Rs mn)
Particulars                             Q3FY12            Q3FY12E          Variance            Q3FY11                  yoy          Q2FY12           qoq
Interest earned                          13,897             13,560               2.5%               9,149             51.9%          13,239         5.0%
Interest expended                         9,591              9,216               4.1%               5,519             73.8%           9,047         6.0%
Net interest income                       4,307              4,344            -0.9%                 3,630             18.6%           4,192         2.7%
Other Income                              2,651              2,302            15.1%                 1,960             35.3%           2,392        10.8%
Total revenues                            6,958              6,647               4.7%               5,590             24.5%           6,584         5.7%
Operating expenses                        3,465              3,415               1.5%               2,678             29.4%           3,254         6.5%
   Employees cost                         1,261              1,209               4.3%                980              28.8%           1,152         9.5%
    Other operating expenses              2,204              2,206            -0.1%                 1,698             29.8%           2,102         4.9%
Operating profits before
                                          3,492              3,231               8.1%               2,912             19.9%           3,330         4.9%
provisions
Total provisions (other than
                                            428                  425             0.8%                562             -23.8%            470          -8.8%
tax) and contingencies (Net)
Exceptional items                               -                  -               na                   -                na                -          na
Profit/(loss) before tax                  3,064              2,807               9.2%               2,350             30.4%           2,860         7.1%
Tax expense                               1,005                  932             7.8%                811              23.8%            929          8.1%
Net profit after tax                      2,060              1,875               9.9%               1,539             33.9%           1,931         6.7%
Extraordinary Items (net of
                                                -                                  na                   -                na                -          na
tax expense)
Net profit incl. extraordinary
                                          2,060              1,875               9.9%               1,539             33.9%           1,931         6.7%
items
Net profit (operating basis)*             2,068              1,654            25.1%                 1,457             42.0%           1,817        13.8%
Source: Company, BRICS Research        * Operating basis excludes trading income, depreciation of investments and extraordinary income

Exhibit 10: Earnings per share
Particulars                                             Q3FY12         Q3FY12E          Variance       Q3FY11                 yoy    Q2FY12          qoq
Reported EPS - diluted basis (Rs)                          4.33           3.94            10.0%              3.25        33.2%            4.06      6.7%
Book value - calculated (Rs)                               92.6           96.8            -4.3%              79.2        16.9%            88.3      4.9%
Book value - adjusted basis (Rs)                           91.3           95.5            -4.4%              78.0        17.1%            87.0      5.0%
Diluted shares outstanding (mn) est.                        476            476            -0.1%               473         0.5%            476       0.0%
Source: Company, BRICS Research

                                         Exhibit 11: Profitability and other key metrics
                                          Particulars                                              Q3FY12           Q3FY12E         Q3FY11        Q2FY12
                                          RoA                                                       1.55%             1.46%          1.54%         1.55%
                                          RoE                                                      19.12%            16.62%         16.44%         18.81%
                                          Non-interest income % of revenues                         38.1%             34.6%          35.1%         36.3%
                                          Tax rate - effective                                      32.8%             33.2%          34.5%         32.5%
                                          Expense ratio                                             49.8%             51.4%          47.9%         49.4%
                                          CASA                                                      26.5%             27.5%          26.8%         27.7%
                                          NIM                                                       3.25%             3.37%          3.61%         3.35%
                                          Advance/deposit ratio                                     79.9%             80.0%          81.5%         78.5%
                                         Source: Company, BRICS Research

Exhibit 12: Credit quality
Particulars                                             Q3FY12         Q3FY12E          Variance       Q3FY11                 yoy    Q2FY12          qoq
Absolute gross NPA (Rs mn)                                3,342          3,285             1.7%             3,060         9.2%           3,326      0.5%
Gross NPA                                                 1.02%          1.04%                              1.21%                      1.09%
Net NPA                                                   0.29%          0.30%                              0.36%                      0.31%
Provision coverage                                      72.00%          71.85%                          70.27%                        72.00%
Source: Company, BRICS Research




BRICS Securities Limited                                                                                                                                    5
IndusInd Bank                                                                   11 January 2012


                           Exhibit 13: Capital ratios
                           Particulars                                      Q3FY12         Q3FY12E            Q3FY11     Q2FY12
                           Total shareholders’ equity to assets               8.0%               8.8%           9.0%       8.3%
                           Basel II
                                       Tier 1 capital                       12.35%           12.21%           13.12%     12.57%
                                       CRAR                                 15.08%           15.30%           17.06%     15.46%
                           Source: Company, BRICS Research

                           Exhibit 14: Balances                                                                         (Rs bn)
                           Particulars                  Q3FY12    Q3FY12E    Variance   Q3FY11          yoy    Q2FY12       qoq
                           Total assets                     551       523       5.4%       415     32.8%          505      9.3%
                           Net worth                         44        46       -4.4%       37     17.5%           42      4.9%
                           Loans & advances                 324       312       3.8%       250     29.7%          301      7.6%
                           Deposits                         406       391       3.8%       307     32.3%          384      5.7%
                           Source: Company, BRICS Research




BRICS Securities Limited                                                                                                          6
   IndusInd Bank                                                                         11 January 2012



Financial summary
Income statement                                            (Rs mn)    Yields and rates                                                   (%)
Y/E 31 March                      2011    2012E    2013E      2014E    Y/E 31 March                        2011    2012E    2013E     2014E
Net interest income              13,765   16,832   20,739     28,665   NIM/ Spread                          3.47     3.34     3.28        3.58
Growth (%)                         55.3     22.3     23.2       38.2   Yield on advances                    12.4     13.7     13.5        12.6
                                                                       Cost of deposits                      6.3      —        —           —
Other income                      7,137    9,997   12,726     15,008
Total income (net of interest                                          Cost of funds                         5.6      7.1      7.8         6.5
                                 20,902   26,828   33,465     43,673
expense)
Employee expenses                 3,827    4,826    5,956      7,976
                                                                       Capital ratios                                                 (%)
Other operating expenses          6,258    8,418   10,389     13,911
                                                                       Y/E 31 March                        2011    2012E    2013E    2014E
Operating expenses               10,085   13,244   16,346     21,886
                                                                       Tier I                               12.3    12.3     11.0         9.8
Operating profit                 10,817   13,585   17,120     21,786   Total CRAR                           15.9    14.6     13.4     12.4
Growth (%)                         53.7     25.6     26.0       27.3   Equity to assets                      8.9     8.4      7.7         7.1
Provisions and contingencies      2,019    1,751    3,296      4,468
PBT                               8,798   11,834   13,824     17,319
                                                                       Asset quality & credit metrics                                 (%)
Provision for tax                 3,025    3,886    4,649      5,756
                                                                       Y/E 31 March                        2011    2012E    2013E    2014E
PAT                               5,773    7,947    9,175     11,563   Gross NPA ratio                      1.01    0.95     0.86     0.86
Growth (%)                         64.8     37.7     15.5       26.0   Net NPA ratio                        0.28    0.27     0.24     0.24
                                                                       Provisions / Loans                   0.84    0.56     0.86     0.92
Balance sheet                                               (Rs bn)
                                                                       NPA coverage ratio (incl. AUCA)      72.6    72.1     72.1     72.1
Y/E 31 March                      2011    2012E    2013E      2014E
                                                                       NPA coverage ratio (excl. AUCA)      72.6    72.1     72.1     72.1
Total assets                       456      563       710       897
                                                                       Absolute gross NPAs (Rs mn)         2,659   3,170    3,627    4,555
Total equity                         40      47        55        64
Advances                           262      331       418       527
Deposits                           344      427       532       670    Valuation ratios                                                   (x)
CASA deposits                        93     115       157       220    Y/E 31 March                        2011    2012E    2013E    2014E
Borrowings                           55      71       100       133    Price/ Book                           2.9     2.6      2.3         1.9
Investments                        212      156       205       268    Price/ Adj. Book                      3.1     2.7      2.3         2.0
                                                                       Price/ Earnings                      20.3    15.6     13.5     10.7
Per share data and key ratios
Y/E 31 March                      2011    2012E    2013E     2014E
Diluted EPS (Rs)                   12.9    16.7     19.3       24.3
RoAA (%)                           1.46    1.52     1.41       1.41
RoAE (%)                           19.3    17.7     17.6       19.0
BV / Share (Rs)                      90      99      115       134
Adj. BV / Share (Rs)                 85      98      113       132
Other income / Net revenue (%)     65.9    62.7     62.0       65.6
Cost / Income ratio (%)            48.2    49.4     48.8       50.1
Dividends / Share                   2.1     2.5      3.0        4.2
Effective tax rate (%)             34.4    32.8     33.6       33.2
CASA ratio (%)                     27.2    26.9     29.5       32.8
Credit / Deposit ratio (%)         76.1    77.6     78.5       78.7




   BRICS Securities Limited                                                                                                           7
IndusInd Bank                                                                  11 January 2012




                                         BRICS RECOMMENDATION SCALE

                             BUY:         More than 15% upside
                             ADD:         Upside up to 15% (between 0% and 15%)
                             REDUCE: Downside up to 15% (between 0% and –15%)
                             SELL:         More than 15% downside


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Securities Limited as well as a Non-Executive, Independent Director in the Board of IndusInd Bank Limited.
It is hereby informed that Dr. T. T. Ram Mohan is a Non-Executive, Independent Director in the Board of BRICS

BRICS Securities Limited                                                                                                    8

				
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