IndusInd Bank Quarterly Results: Earnings Outlook Strong, Maintain Buy: Anand Rathi

Indusind Bank's Q4 FY22 profitability improved, with a 1.51% RoA (up 16bps q/q) and better asset quality. Key positives are 1) strong dis-bursements in the corporate and VF books, 2) strong retail deposit growth, 3) sturdy balance sheet with 72% coverage and a Rs33bn provision buffer (1.4% of loans) and 4) strong liquidity and capitalisation.

"With credit growth picking up and normalising credit costs, earnings would improve. We maintain our positive view on the bank with a target price of Rs 1,200, valuing it at 1.6x P/ABV on its FY24e book," broking firm Anand rathi has said.

Asset quality improves

According to Anand Rathi, the GNPA decreased 21 basis points sequentially to 2.27% largely because of high write-offs (Rs13.5bn). Slippages were Rs20.9bn (3.5% of loans), of which Rs17.4bn stemmed from the retail book. The restructured book was ~Rs62bn (down 17.6% q/q). With most of the stress already delinquent/restructured and collections reaching pre-Covid levels, slippages are expected to ease from Q1 FY23.

Lower provisions to drive RoA. With slippages easing, a healthy 72% PCR and a Rs33.3bn provision buffer, the bank can absorb near-term uncertainty arising from the residual impact of the second Covid-19 wave. We expect normal credit costs in the medium term and sharply improved profitability. Accordingly, we model a ~1.5% RoA for FY23.

Valuation

"Our May'23 Rs 1,200 target is based on the two-stage DDM model. This implies a ~1.6x P/ABV multiple on its FY24e book. Risks: Lumpy slippage from the corporate book; volatility in asset quality from the MFI book," Anand Rathi has said.