Motilal Oswal Suggests Buy This Large Cap Banking Stocks For 37% Gains, Reported Rs 16.3b PAT

Motilal Oswal in its report on IndusInd Bank, a private sector bank, has suggested buying for a target price of Rs 1,300/share. If investors buy the stock of the IndusInd bank at the Current Market Price they could expect potential gains of 37% in 12 months, considering the estimated target price of the brokerage firm. Bank's operating performance on the track, earning gaining traction. Bank reported a stable quarter, with PAT of R16.3b aided by higher other income as NII, Opex and provisions came in line in 1QFY23. Asset quality deteriorated QoQ due to slippages from the restructuring book.

Stock Outlook

The shares of IndusInd Bank are currently trading at Rs 949/share. The stock today gained 7.34%. The was opened at Rs 903/share. The 52-week low of the stock was recorded on 23 June 2022 at Rs 763.20/share. Its 52-week high was recorded on 28 October 2021 at Rs 1,242/share.

IndusInd Bank is a large cap banking stock with a market capitalization of Rs 73,460 crore at the time of writing. The ROE of the stock is 10. PE is 10.47. PB is 15.28. TTM EPS is 61.99. Its dividend yield is 0.53%.

It gained 14.97% in the last 1 week, and 18.14% in the last 1 month, respectively. In the past 1 year, its share price fell 3.85% and 33.64% in the past 3 years, respectively. In the last 5 years, it has fallen 39.76%.

Restructured book moderates to 2.1%

IndusInd Bank reported a stable quarter, with PAT of Rs16.3b (+61% YoY, 11% beat) aided by higher other income as NII, Opex and provisions came in line in 1QFY23. Asset quality deteriorated QoQ due to slippages from the restructuring book. Loan growth remained steady across both Corporate and Consumer Finance books. The CV book and Credit Card portfolio too witnessed a robust sequential growth. However, fresh slippages remained elevated at Rs 22.5b (3.8% annualized) led by Rs 9b worth of slippages from the restructuring pool. As a result, restructuring book declined to 2.1% from 2.6% in 4QFY22. GNPA/NNPA ratio increased marginally by 8bp/3bp QoQ to 2.35%/0.67%, respectively.

Margin improves to 4.21%; PCR healthy at ~72%

IndusInd Bank reported 1QFY23 PAT of Rs 16.3b (+61% YoY; 11% beat) aided by higher other income, healthy NII growth and controlled provisions. NII grew ~16% YoY to Rs 41.3b (in line) while other income rose 12% YoY as the bank reported treasury gains of Rs 1.5b. Core fee income grew strongly at 9% QoQ. NIM improved marginally to 4.21% in 1QFY23. Operating expenses grew 21% YoY to Rs 26.3b (in line). C/I ratio stood at 43.4% v/s 42.6% in 4QFY22. PPoP grew 10% YoY to Rs 34.3b. Core PPoP grew at healthy 26% YoY in 1QFY23.

On the business front, loans grew 3.7% QoQ (+17.7% YoY), led by both Consumer Finance (+3.0% QoQ) and Corporate book (+4.5% QoQ). In the Consumer business, disbursement growth picked up in the Vehicle/MFI segments. The Tractor and Utility Vehicle segments maintained healthy momentum at 4% and 10% QoQ, respectively, while Credit Card book grew 17% QoQ. Retail-to-Wholesale mix stood at 54:46. Deposit growth was at 13% YoY with CASA mix at 43.1% and Retail deposit mix at 41% as per LCR.

On the asset quality front, fresh slippages stood at Rs 22.5b led by Rs 9b worth of slippages from the restructuring book. As a result, restructuring book declined to 2.1% from 2.6% in 4QFY22. GNPA/NNPA ratio increased marginally by 8bp/3bp QoQ to 2.35%/0.67%, respectively. PCR ratio was stable at ~72%. IndusInd Bank holds contingent provisions of Rs 30b (1.2% of loans).

Highlights from the management commentary

SMA 1 and 2 books stood at 10bp and 39bp, respectively. Overall stress from the restructured book is likely to be ~15-20%. ~70% of this book is forecasted to run down by 3QFY23. The 30-90dpd within MFI, including restructured book, moderated to 2.2% in 1QFY23 from 2.6% in Mar'22. The bank maintains its guidance of 15-18% loan growth, PPoP margin of >5%, credit cost of 120-150bp and C/I ratio of ~41-43%.

Valuation and View, Buy for target price of Rs 1,300/share

IndusInd Bank's operating performance remains on track led by healthy NII growth and controlled provisions. Asset quality ratios increased marginally on higher slippages from restructured assets though credit cost outlook remains in control. The management is guiding for continued loan growth momentum driven by steady trends across both consumer and corporate businesses. Healthy provisioning in the MFI portfolio and contingent provisioning buffer of 1.2% of loans will enable a sharp decline in credit costs, thereby driving sharp recovery in earnings. We estimate PAT to grow at 35% CAGR over FY22-24 leading to 15.2% RoE in FY24. We maintain our BUY rating with a Target Price of Rs 1,300 (premised on 1.7x FY24E ABV).

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.