PL Stock Report: IndusInd Bank (IIB IN) - Q2FY24 Result Update - Liability accretion and opex to be watched - BUY

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

Rating: BUY | CMP: Rs1,420 | TP: Rs1,620

Q2FY24 Result Update - Liability accretion and opex to be watched

Quick Pointers:

♦ Core PAT beat of 2.8% led by better NII and lower provisions.

♦ Retail deposit share improving but opex to remain elevated.

IIB saw a steady quarter; NII was 3.6% ahead of PLe that was offset by lower fees and higher opex (+7.1% QoQ). Superior NIM (21bps beat) was a function of (1) growth in higher yielding segments and (2) better LDR. Share of RTD continues to enhance and touched ~44%. Growth of 18-20% for FY24 can be achieved, but sustaining the same over medium term would depend on strong liability accretion. Hence we are factoring a ~17% loan CAGR over FY24-26E. Asset quality was stable; bank would like to increase buffer provisions by Rs3bn in near term which would take the reserve to ~58bps. Stock is valued at 1.7x for 1.9% RoA (FY25/26E) and levers for further re-rating are (1) strong liability accretion (2) reduction in cost to income and (3) creation of buffer provisions with decline in credit costs. We maintain multiple at 1.8x but as we roll forward to Sep’25, out TP increases to Rs1620 from Rs1530. Retain BUY.

♦ Stable quarter; better NII offset by higher opex, steady asset quality: NII was ahead at Rs50.8bn (PLe Rs49.0bn) mainly led by better NIM at 4.8% (PLe 4.6%) that was driven by better investment yield and lower funding cost. Credit growth was 21.3% YoY while deposit accretion was 14.0% YoY. CASA ratio declined by 60bps QoQ to 39.3%. Other income was a bit lower at Rs22.8bn (PLe Rs23.14bn) mainly driven by weaker fees. Opex was a miss at Rs34.8bn (PLe 33.4bn) due to both staff cost and other opex. PPoP at Rs38.8bn was largely in-line while core PPoP at Rs37.2bn was 1.4% below PLe. Asset quality was stable and broadly as expected; GNPA/NNPA was 1.93%/0.57% while net slippages were a tad lower. Provisions were a lesser at Rs9.7bn (PLe Rs11bn). PAT was higher at Rs21.8bn (PLe Rs20.8bn).

♦ Growth guidance for FY24E maintained at 18-20%: Loan accretion QoQ was mainly led by CFD (+6.7%); corporate growth was softer at 2.0% while

♦ NIM further enhanced, aim to increase buffer provisions: NIM improved by 8bps QoQ due to (1) credit flow led by higher yielding segments of vehicle financing and MFI and (2) increase in LDR by 86bps to 87.7%. Hence over the medium term liability accretion would remain a key driver to sustained loan growth. On asset quality, while net slippages were controlled, gross slippages saw a blip led by VF and CCB (1 account of Rs1.69bn slipped). Bank utilized contingent provisions of Rs18.1bn (~57bps) in last 6 quarters and current balance is ~48bps. Target is to strengthen buffer provisions by Rs3bn which would be effected in H2FY24 taking the total reserve to ~58bps.

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