PL Stock Report - IndusInd Bank (IIB IN) - Q1FY24 Result Update - Good quarter; growth target to keep costs high - BUY

IndusInd Bank (IIB IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,390 | TP: Rs1,530

Q1FY24 Result Update - Good quarter; growth target to keep costs high

Quick Pointers:

♦ PAT beat of 3.7% led by better NII, fees and asset quality.

♦ Retail deposit share improving but opex to remain elevated.

IIB saw a good quarter with core PAT beating PLe by 5.2% driven by better NII, fees and asset quality. NIM at 4.72% was 12bps ahead of PLe as higher retail asset base supported yields. Bank has maintained its growth guidance of 18-23% which in our opinion would be a function of superior growth in MFI, vehicle and small business. We expect a loan CAGR of 18.5% over FY23-25E. A key positive has been consistent increase in retail deposit share to 43.4% vs 41.0% a year ago. Earnings quality for IIB has been improving since the past 9 quarters led by 1) strong loan growth that was funded by granular deposits and 2) better asset quality which translated to lower credit costs. However, high proportion of wholesale deposits and lower buffer provisions at 56bps leaves limited headroom for multiple expansion. Keeping multiple unchanged at 1.8x on FY25E ABV we maintain TP at Rs1,530. Retain ‘BUY’.

Good quarter with beat on all fronts: NII was ahead at Rs48.7bn (PLe Rs47.4bn) +18% YoY while credit growth was 21.4% YoY and 3.9% QoQ. NIM was a beat at 4.7% (PLe 4.6%) driven by better loan yields at 12.87% (PLe 12.65%). Deposit growth was 14.6% YoY and 3.2% QoQ. CASA was largely flat QoQ at ~40%. Other income at Rs21.2bn was higher (PLe Rs20.45bn) mainly driven by higher fee income. Opex was a slight miss at Rs32.5bn (PLe 31.9bn) largely due to other opex. PPoP at Rs38.3bn was 3.0% ahead of PLe due to better NII and fees. GNPA was 10bps lower to PLe and reduced by 4bps QoQ to 1.94% due to lower net slippages. Hence, provisions were a tad better at Rs9.9bn (PLe Rs10.3bn). PAT was higher at Rs21.2bn (PLe Rs20.5bn).

Growth guidance of 18-23% maintained; deposit franchise improving: Loan growth at 3.9% QoQ was broad based led by corporate (+3.9%) and consumer (3.6%). Growth has been robust in

Opex to be elevated; credit costs to remain controlled: Since IIB intends to add 640-1140 branches over FY23-26E (341 in FY23) opex might remain elevated in medium term. Bank is targeting a cost to income (C/I) of ~45% in FY24 post which it expects C/I to range from 41-43% which, in our opinion would hinge on better NIM profile that would depend on stronger credit flow into higher yielding segments of consumer and MFI. Lower net slippages at 114bps (PLe 141bps) led to better asset quality and banks expects credit costs to range from 110-130bps in FY24E. ECL impact, if any, could be 1.0-1.5%.

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