BUY SUHANI ADILABADKAR RESEARCH REPORT

Q3 FY18

INDUSIND BANK LTD QUARTERLY OUTLOOK & RECOMMENDATION INDUSIND BANK LTD reported expected double digit growth with PAT growing at 25% YOY and 6% sequentially. PAT came at Rs. 9363 Mn in the current quarter compared to Rs. 7506 Mn corresponding quarter previous year. Net Interest Income, difference between interest earned and expended also maintained its double digit growth momentum rising 20% YOY at Rs. 18950 Mn against Rs.15780 Mn in Q3 FY17. Net Interest Margin (NIM) came a tad lower than its usual 4% level due to mild pressure on corporate side and was reported at 3.99% in December quarter FY18. Other income which accounts 22% of total income for the bank climbed 17% YOY & was constant sequentially in Q3 FY18. Core fee maintained its growth momentum of 22% yearly & 6% sequentially at Rs. 10770 Mn. Gross NPAs and Net NPAs stood at 1.16 % and 0.46% in Q3 FY18 compared to 0.94% & 0.39% respectively same period previous year. GNPA ratio witnessed an uptick of about 22 basis points YOY and 8 basis points sequentially. NNPA ratio was slower, moving up by 7 & 2 basis points YOY & quarterly respectively. One basis point is equal to 0.01%. Provisions & contingencies continued with their sequential improvement with a 20% decline, whereas on yearly basis, there was a jump of 9%. Provisions & Contingencies were reported at Rs. 2362 Mn against Rs. 2169 Mn same period previous year. With respect to segment revenue, double digit growth was evident in Retail, other banking business & treasury whereas Corporate slowed down to 2% YOY. Retail outpaced Corporate growing at 23% where as Other banking business was highest at 67% growth rate YOY. Treasury income grew at 11% YOY and declined 16% QOQ due to hardening of yields in the December quarter. CASA ratio stood at 42.90% rising 580 basis points YOY supported by savings accounts which jumped 1.7 times YOY. The Bank aims to achieve CASA ratio of about 45% by 2020. In absolute terms CASA rose 42% YOY at Rs. 626160 Mn against Rs. 441620 Mn corresponding period previous year. Advances grew at a higher rate of 25% & deposits at 23% YOY. The corporate loan book grew faster than retail in the current quarter, though retail income tends to be higher due to differential of about 5% between retail and corporate yields. IndusInd Bank is also witnessing strong traction through its digital initiatives in savings accounts, personal loans, credit cards & mobile banking business. IndusInd Bank has announced its merger with Bharat Financial on 14th October 2017. The bank has received approval from Competition Commission and is awaiting RBI nod. With double digit profitability growth, stable CASA, provisions reined in, credit growth above industry average, strong core fee, lower slippages & credit costs and Bharat Financial Inclusion in its stable, IndusInd Bank has fortified its position in private sector banking. Thus, we recommend BUY for the stock for medium and long term investment with target price of Rs.1925.

CMP

Rs. 1679.50

TARGET

Rs. 1925.00

SECTOR

BANKING

SCRIP 532187 CODE FACE 10.00 VALUE MARKET Rs. 1007263 Mn CAP 52 WEEK Rs.213.00 /Rs.117.00 HIGH/LOW SHAREHOLDING PATTERN (%) PROMOTER 16.79 PUBLIC 83.21 OTHERS TOTAL 100.00 In Mn Q3 FY18 Q3 FY17 CHN% NII

18950

15780

20%

NIM

4%

3.99

0.01

PAT

9363

7506

25%

EPS

15.61

12.56

24%

FY17A

FY18E

FY19E

NII

60626.00

74041.60

86545.37

PAT

28678.90

35048.56

41713.04

EPS

48.06

58.44

69.55

PE

35.03

28.74

24.15

In Mn

INDUSIND BANK V/S S&P BSE SENSEX

PERFORMANCE METRICS (December Quarter FY18) Profitability Analysis PROFIT AFTER TAX (Rs. In Mn)

NET INTEREST MARGIN

9363

7516

8365

8801

4.00%

4.00%

4.00%

4.00%

7506

3.99%

Q3 FY17

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

IndusInd Bank reported strong third quarter FY18 with PAT rising 25% and NII growing 20% YOY in the current December quarter. Sequential growth has also been stable at 6% & 4% for PAT & NII in Q3 FY18. Core Fee, an important constituent of Other income supported bottomline by rising 22% YOY and 6% sequentially. Other income on the other hand jumped 17% YOY and was stagnant on quarterly basis impacted by lower trading income due to hardening of yields in December quarter. Net Interest Margin was almost stagnant, coming at 3.99% due to mild pressure on corporate side. The bank reported strong loan growth propelled by higher retail contribution and working capital recovery visible in the December quarter. IndusInd’s balance sheet crossed Rs. 200,00,00 Mn in for the first time in Q3 FY18. IndusInd Bank witnessed two main star performers for the quarter, mainly commercial vehicle growth and growth in savings & current account customers. The bank added around 300,000 Savings & Current account new customers in the current December quarter. Commercial Vehicle disbursement has gone up by 39% YOY and exhibited strong traction in two wheelers, cars, utility vehicles and tractors disbursements which grew 58% YOY. Cost to income ratio stands at 45.98% in the current quarter improving by about 149 basis points in Q3 FY18.

Q3 FY17

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

NET INTEREST INCOME (Rs. In Mn)

18950 17740 15784

Q3 FY17

18210

16675

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

OTHER INCOME (Rs. In Mn)

12113

11673

11876

CORE FEE (RS. IN MN)

11868

Q3 FY18

Q3 FY17

CHG

Trade & Remittance

1270.00

1060.00

20%

Foreign Exchange Income

2020.00

1790.00

13%

Distribution Fees

2560.00

1810.00

41%

General Banking Fees

700.00

640.00

9%

Loan Processing Fees

2420.00

1950.00

24%

Investment Banking

1800.00

1600.00

13%

10168

Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18

Segment Revenue Analysis

Segment Revenue (Rs. In Mn)

Q3 FY18

Q3 FY17

CHG%

Treasury

9129.30

8254.30

10.60%

Corporate

17385.10

17042.20

2.01%

Retail

Other Banking Business

30174.20

24519.50

23.06%

152.00

90.80

67.40%

REVENUE COMPOSITION

Corporate 31%

Treasury 16%

49%

Retail 53% Other Banking Business 0.0002%

All revenue segments reported positive growth YOY with other banking business reporting the highest growth rate of 67%. Retail segment outpaced Corporate by growing 23% YOY whereas corporate segment jumped 2% in the current December quarter. Sequential growth was stagnant for corporate whereas retail grew at 8%. Retail and Corporate book have a yield differential of about 5% leading to higher retail revenues. Treasury segment exhibited negative growth sequentially due to hardening of yields whereas on yearly basis, rise was 11% in the current December quarter FY18.

Asset Quality Analysis

PROVISIONS (Rs In Mn)

ASSET QUALITY

Q3 FY18

Q3 FY17

CHN 4301

Gross NPAs

1.16%

0.94%

22 bp

2169

Net NPAs

Provisions & Contingencies

3100

0.46%

0.39%

7 bp

2361.60

2168.50

8.90%

2938 2362

Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18

Gross NPAs exhibited uptick of about 22 basis points YOY and 8 basis points quarterly. Net NPA ratio moved slower at 7 & 2 basis points YOY & QOQ respectively in the current December quarter. Total Gross NPAs stood at Rs. 14987 Mn in Q3 FY18 against Rs. 9716 Mn same period previous year, rising 54% YOY. Sequential growth was 11% in Q3 FY18. NNPAs were reported at Rs. 5922 Mn in the current quarter against Rs 4007 Mn corresponding quarter previous year, growing 48% YOY and 10% sequentially. Provisions have increased 9% YOY but declined sequentially by 20% in the current December quarter. Provisions & Contingencies jumped to Rs. 2362 Mn from Rs. 2169 Mn in Q3 FY17 with an absolute increase of Rs. 193 Mn YOY. Consumer Finance Segment constitutes 41% of the total loan book and accounted for 1.10% of the total GNPAs, improving by 9 basis points QOQ. Restructured advances stood at 0.15% in Q3 FY18 compared to 0.16% in Q2 FY18. Provision coverage ratio was at 60% in the current December quarter. Gross slippages have fallen from 1.70% to 1.30% in the current quarter. Sale to ARC has been around Rs. 400 Mn and floating provision is maintained at Rs. 700 Mn.

NON PERFORMING ASSETS 1.09 0.94

1.16

1.08

0.93

GNPAs 0.39

0.39

Q3 FY17

0.44

Q4 FY17

Q1 FY18

0.46

0.44

Q2 FY18

Q3 FY18

Business Growth Analysis CASA ratio repeated its September performance by rising 580 basis points YOY and stood at 42.90% in the current December quarter. In current quarter, savings accounts contributed 68% to CASA deposits, and were reported at Rs.422460 Mn against Rs. 251750 Mn same period previous year. Sequentially savings accounts grew at 5% and jumped 1.7 times YOY. The bank has added around 300000 new savings and current account customers. Current Accounts stood at Rs. 203700 Mn in the current quarter compared to Rs. 189870 Mn same period previous year, rising 7% YOY in the current December quarter and 4% sequentially. CASA on the whole in absolute terms jumped 42% YOY from Rs. 441620 Mn to Rs. 626160 Mn in the current December quarter. IndusInd bank has taken its branch network to 1320 branches & 2162 ATMs as on 31st December 2017 against 1075 branches & 1960 ATMs as on 31st December 2016. The CRAR ratio for the quarter stood at 15.83% with Tier I capital of 15.33% as on 31st December 2017.

NNPAs

CASA RATIO 42.90%

42.30%

37.80%

37.10%

Q3 FY17

36.85%

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

ADVANCES & DEPOSITS (Rs. In Mn)

1192180

1460860 1414410 1336730 1285420 1265720 1231810 1164070 1130810

1027700

Advances Deposits

Q3 FY17

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

Deposits & Advances grew at sequential rate of 3% & 4% and average growth rate of the previous four quarters also stands at 6% & 5% respectively. Advances out-paced Deposits both YOY & quarterly as loan growth revived due to hike in bond yields and working capital recovery on the corporate side. In the December quarter, corporate book has moved faster than retail, though the corporate revenues are lower due to yield differential of 5% between retail & corporate. The Bank aims to achieve 50-50% for retail and corporate book which is currently 41% & 59% respectively in the current quarter. The Bank has made good headway through its digital initiatives. IndusInd Bank garnered 25% of its savings bank customers through tap banking, 65% of personal loans were pre-approved, 15% of credit cards were acquired online and is also witnessing good traction in mobile banking which grew 3 times in the current quarter. Corporate Loan book stood at Rs. 754180 Mn which comprised 59% of the total loan book and has the highest exposure in gems & jewelry segment at 5.39%in December quarter. Corporate Loan Book increased 26% YOY and 2% sequentially. Retail or Consumer finance comprised 41% of the total loan book at Rs. 531240 Mn with commercial vehicles accounting for the major chunk, 14% of the total loan book. Commercial Vehicles reported 23% YOY growth whereas QOQ growth was 10% in the current quarter. Consumer Finance grew 24% YOY & 7% sequentially. CORPORATE LOAN BOOK

Q3 FY18

Q2 FY18

Change%

Gems & Jewellery

5.39%

5.78%

-0.39%

Lease Rental

3.10%

3.08%

0.02%

Real estate

3.02%

2.86%

0.16%

Microfinance

2.04%

2.18%

-0.14%

Telecom- Cellular

1.18%

1.97%

-0.79%

Constn related to infra – EPC

1.42%

1.36%

0.06%

Power Generation

3.36%

2.03%

1.33%

Contract Construction- civil

1.37%

1.59%

-0.22%

Media, Entertainment & Adv

0.89%

1.05%

-0.16%

Services

2.07%

1.99%

0.08%

Steel

1.90%

1.94%

-0.04%

Other Industry

30.65%

31.66%

-1.01%

Food Beverages & Food Processing

1.39%

1.32%

0.07%

Power Distribution

0.90%

1.03%

-0.13%

Corporate Profile IndusInd Bank, which commenced operations in 1994, caters to the needs of both consumer and corporate customers. Its technology platform supports multi-channel delivery capabilities. As on December 31st, 2017, IndusInd Bank has 1320 branches, and 2162 ATMs spread across 690 geographical locations of the country. The Bank also has representative offices in London, Dubai and Abu Dhabi. The Bank believes in driving its business through technology. It enjoys clearing bank status for both major stock exchanges BSE and NSE - and major commodity exchanges in the country, including MCX, NCDEX, and NMCE. IndusInd Bank on April 1st, 2013 was included in the NIFTY 50 benchmark index. On June 28, 2016, IndusInd Bank has commenced operations in International Finance Service Centre (IFSC) Banking Unit in Gujarat International Finance Tec City (GIFT).

INDUSIND BANK LTD & BHARAT FINANCIAL INCLUSION LTD MERGER IndusInd Bank and Bharat Financial Inclusion (BFIL) announced merger on 14th October 2017. The merger will be effected through an all stock transaction of Bharat Financial Inclusion Limited into IndusInd through a composite scheme of Arrangement. As per the arrangement, BFIL will transfer its Business Correspondent operations into a wholly owned subsidiary of IndusInd (BC-WOS), which shall be incorporated after receipt of requisite regulatory approvals. All assets & Liabilities originated by the BC-WOS will be booked in the balance sheet of IndusInd Bank.

KEY TAKEAWAYS     



BFIL shareholders will receive 639 shares of IndusInd for every 1000 shares of BFIL. Premium of 12.60% to BFIL over two week volume weighted price. No change in the board of IndusInd Bank. BFIL has 1408 branches across 347 districts complementing 1210 branches and 999 vehicle finance outlets of IndusInd Bank. The merger is expected to provide synergy with respect to lower cost of funds, eligibility for priority sector loans, release of capital, higher customer base, ability to monetize excess priority sector loans and widening of ancillary product basket. After merger, total customer base is expected to be 16.3 Mn, net worth of Rs. 239210 Mn and combined assets of Rs. 2008200 Mn.

Financial Analysis QUARTERLY PROFIT & LOSS STATEMENT OF INDUSIND BANK LTD FROM 30th June 2017 TO 31st March 2018E VALUE

30-June-17

30-Sep-17

31-Dec-17

31-March-18E

Rs. In Million

3 months

3 months

3 months

3 months

INTEREST EARNED

41355.10

42083.50

42867.80

44582.51

OTHER INCOME

11672.60

11875.70

11867.60

12460.98

TOTAL INCOME

53027.70

53959.20

54735.40

57043.49

INTEREST EXPENDED

-23614.50

-23873.60

-23919.70

-25115.69

PROFIT BEFORE OP EXP & PROVISIONS

29413.20

30085.60

30815.70

31927.81

OPERATING EXPENSES

-13527.90

-13750.60

-14168.80

-14593.86

OPERATING PROFIT

15885.30

16335.00

16646.90

17333.94

PROVISIONS

-3099.70

-2937.50

-2361.60

-2479.68

PROFIT BEFORE TAX

12785.60

13397.50

14285.30

14854.26

TAX

-4420.10

-4596.50

-4922.80

-5070.48

PROFIT AFTER TAX

8365.50

8801.00

9362.50

9783.78

EQUITY CAPITAL

5985.20

5988.70

5997.40

5997.40

FACE VALUE

10.00

10.00

10.00

10.00

EPS

13.98

14.70

15.61

16.31

ANNUAL PROFIT & LOSS STATEMENT OF INDUSIND BANK LTD FROM 2016 TO 2020E VALUE

March-16

March-17

March-18E

March-19E

March-20E

Rs. In Million

12 months

12 months

12 months

12 months

12 months

INTEREST EARNED

118717.40

142903.30

169986.91

192085.20

213214.58

OTHER INCOME

32969.50

41714.90

47972.14

53728.79

59101.67

TOTAL INCOME

151686.90

184618.20

217959.04

245813.99

272316.25

INTEREST EXPENDED

-73551.70

-82277.30

-95945.31

-105539.84

-113983.02

PROFIT BEFORE OP EXP & PROVISIONS

78135.20

102340.90

122013.74

140274.16

158333.22

OPERATING EXPENSES

-36721.00

-47830.80

-56440.34

-63213.19

-69534.50

OPERATING PROFIT

41414.20

54510.10

65573.39

77060.97

88798.72

PROVISIONS

-6721.60

-10913.30

-11131.57

-11688.14

-12389.43

PROFIT BEFORE TAX

34692.60

43596.80

54441.83

65372.83

76409.29

TAX

-11828.10

-14917.90

-19393.27

-23659.79

-27918.55

PROFIT AFTER TAX

22864.50

28678.90

35048.56

41713.04

48490.74

EQUITY CAPITAL

5949.90

5981.50

5997.40

5997.40

5997.40

167202.20

196733.80

231782.36

273495.40

321986.13

FACE VALUE

10.00

10.00

10.00

10.00

10.00

EPS

38.43

48.06

58.44

69.55

80.85

RESERVES

BALANCE SHEET FROM 2017 TO 2020E CAPITAL & LIABILITIES (Rs. In Mn)

2017

2018E

2019E

2020E

CAPITAL

5981.50

5997.40

5997.40

5997.40

EMPLOYEE STOCKOPTIONS OUTSTANDING

152.00

159.60

169.97

178.47

RESERVES & SURPLUS

200327.70

231782.36

273495.40

321986.13

DEPOSITS

1265722.20

1594809.98

1913771.97

2239113.20

BORROWINGS

224536.90

242499.85

254624.84

262263.59

OTHER LIABILITIES & PROVISIONS

89763.80

96944.90

102761.60

106872.06

1786484.10

2172194.09

2550821.18

2936410.86

CASH & BALANCES WITH RBI

77487.50

95309.63

111512.26

128239.10

BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE

108795.00

130554.00

150137.10

169654.92

INVESTMENTS

367021.40

447766.11

528364.01

607618.61

ADVANCES

1130805.10

1377783.84

1623305.54

1878214.25

FIXED ASSETS

13352.30

13953.15

14650.81

15090.34

OTHER ASSETS

89022.80

106827.36

122851.46

137593.64

TOTAL ASSETS

1786484.10

2172194.09

2550821.18

2936410.86

TOTAL LIABILITIES

ASSETS (Rs. In Mn)

Ratio Analysis YEAR

FY 16A

FY 17A

FY 18E

FY19E

FY20E

38.43

48.06

58.44

69.55

80.85

NPM

15.07%

15.44%

16.08%

16.97%

17.81%

EBDITA MARGIN

65.8%

71.0%

71.8%

73.0%

74.3%

ROE

13.20%

14.15%

14.74%

14.92%

14.78%

BOOK VALUE

291.02

338.90

396.47

466.02

546.88

P/BV

5.77

4.96

4.24

3.60

3.07

PE

43.70

35.03

28.74

24.15

20.77

EPS

Comparative Analysis (Standalone) Q3 FY18

EPS

CAR

PAT (Rs. In Mn)

GNPA RATIO

MKT CAP (Rs. In Mn)

NIM

CASA RATIO

INDUSIND BANK

15.61

15.83%

9362.50

1.16%

1007263.33

3.99%

42.90%

FEDERAL BANK

1.33

14.41%

2600.10

2.52%

200927.90

3.33%

32.96%

YES BANK

4.70

18.40%

10769.00

1.72%

782139.70

3.50%

38.00%

DCB BANK

1.85

15.77%

570.00

1.89%

56715.50

4.12%

25.67%

SUHANI ADILABADKAR

[email protected] 9701063320

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