IndusInd Bank (INDBA) | 1420content.icicidirect.com/mailimages/IDirect_IndusIndBank_Q4FY17.pdf ·...

April 20, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Strength in core performance sustains... • IndusInd Bank’s Q4FY17 operational performance was healthy and

above estimates. NII increased 31.5% YoY to | 1667 crore led by strong loan growth of 27.9% YoY to | 113081 crore. PPP was higher than estimate at 15% YoY to | 1572 crore led by higher-than-expected other income of | 1211 crore

• Profit continued to increase at a healthy 21% YoY to | 752 crore. However, this traction is lower than the previous trajectory. This was largely due to the ~| 122 crore extra provision made. Excluding extra one-off provision, PAT growth would have been higher

• Advances growth was led more by corporate book (up 30% YoY) than retail book (up 25% YoY)

• NIMs were maintained QoQ at 4% aided by a decline in CoF • Asset quality remained largely stable during the quarter. GNPA,

NNPA ratios were flat QoQ at 0.93% and 0.39%, respectively. The restructured book reduced from 0.41% of loans in Q3FY17 to 0.37%

Turnaround done successfully; growth ahead of industry to sustain After taking over in early 2008, the current management has transformed IndusInd Bank (IIB) from low and volatile balance sheet growth to steady and sustainable growth with strong profitability. We like the fact that the transformation has been a qualitative one (RoA up from 0.3% to 1.9% as on FY17) despite the turbulent economic scenario. Loans, deposits and PAT traction improved to 27%, 23% and 50% CAGR in FY08-17 from 12%, 13% and -35% in FY05-08, respectively. The loan and deposit grew 27.8% and 36% to | 113080 crore and | 126572 crore, respectively, as on FY17. IIB’s loan mix was 40.3% consumer finance (CF), ~80% of which is high vehicle financing, and 59.7% corporate banking (CB), working capital in nature and well diversified across industries. We factor in 25% loan CAGR in FY17-19E to | 177168 crore. Healthy NIMs to stay with focus on CF book ahead, decline in CoF IIB maintained calculated NIM of over 3.7% in the past while Q4FY17 NIM was at an all-time high of 4%. In the past six years, reported NIM improved from 1.7% to ~4% as on FY17. Such a structural improvement was led by an improvement in CASA franchise (doubled to >30% in the past six years), helping keep CoF under control across various cycles. With a strong liability franchise and rising CF proportion, we expect calculated NIM to stay healthy at ~4% by FY19E. Diversified asset book enables superior asset quality IIB has fared well over the years in terms of asset quality with the GNPA ratio improving from 3.1% in FY08 to 1% by FY11 and maintained at 0.9% now. Diversification led to a steady performance on the asset quality front. Concerns surrounding the CV portfolio (14% of loans) are receding. Going ahead, we expect GNPA ratio to remain steady at 1% by FY19E. Consistency, strong earnings visibility provide comfort; maintain BUY IIB has continued to deliver a strong performance leading to continuous re-rating. Normalised return ratios of ~18% RoE & ~2% RoA provide comfort. We factor in FY19 estimates and expect PAT CAGR of 26% to | 4544 crore by FY19E. The bank is well placed to benefit from higher business momentum maintaining stable margin & lower capital usage, which will entail improvement in return ratios. We revise our TP higher to | 1570 (valuing at 3.5x FY17E ABV). We maintain BUY recommendation. The bank initiated planning cycle four for FY18-20 with a focus on retail, MFI, doubling the assets book and reaching CASA ratio of 40%.

Rating matrix Rating : BuyTarget : | 1570Target Period : 12 monthsPotential Upside : 11%

What’s Changed? Target Changed from | 1350 to | 1570EPS FY18E Changed from | 58 to | 59.2EPS FY19E Introduced at | 76Rating Unchanged

Quarterly Performance

Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%)NII 1,667.5 1,268.2 31.5 1,578.4 5.6Other income 1,211.3 912.8 32.7 1,016.8 19.1PPP 1,572.2 1,151.2 36.6 1,363.3 15.3PAT 751.6 620.4 21.2 750.6 0.1

Key Financials

| Crore FY16 FY17E FY18E FY19ENII 4,517.6 6,067.9 6,957.1 8,684.0PPP 4,178.8 5,455.7 6,374.4 7,838.3PAT 2,285.4 2,868.2 3,542.3 4,544.3

Valuation summary

FY16 FY17E FY18E FY19EP/E 36.9 29.5 23.9 18.6Target P/E 40.9 32.7 26.5 20.7P/ABV 4.8 4.2 3.7 3.2Target P/ABV 5.3 4.7 4.1 3.5RoE 15.9 14.9 16.1 17.9RoA 1.9 1.8 1.8 1.9 Stock data Market Capitalisation | 85855 CroreGNPA (Q4FY17) | 1055 CroreNNPA (Q4FY17) | 439 CroreNIM (%) (Q4FY17) 4.0052 week H/L 1445 /966Net worth | 20646 CroreFace Value | 10DII Holding (%) 13.0FII Holding (%) 43.0 Price performance (%)

Return % 1M 3M 6M 12MYes Bank 6.5 19.3 24.4 79.7Axis Bank -3.4 2.3 -6.2 12.2Indusind Bank 3.5 16.6 18.3 44.9

IndusInd Bank (INDBA) | 1420

Research Analyst

Kajal Gandhi [email protected]

Vasant Lohiya [email protected] Vishal Narnolia [email protected]


Variance analysis Q4FY17 Q4FY17E Q4FY16 YoY (%) Q3FY17 QoQ (%) Comments

NII 1,667 1,693 1,268 31.5 1,578 5.6 NII traction led by healthy advance growth as well as strong margins

NIM (%) 4.00 3.80 3.94 6 bps 4.00 0 bpsMargins were flat on a QoQ basis. Going ahead, the management expects margins to stay strong owing to decling system rates and 72% of assets being fixed rate

Other Income 1,211 990 913 32.7 1,017 19.1 Core income growth remained healthy at 21.2% YoY

Net Total Income 2,879 2,684 2,181 32.0 2,595 10.9Staff cost 394 414 336 17.2 394 0.1

Other Operating Expenses 912 880 693 31.6 838 8.9Operating expenses were higher as the bank is investing in technology. The benefits would accrue by FY18E in terms of a decline in cost to income ratio

PPP 1,572 1,390 1,151 36.6 1,363 15.3Provision 430 204 214 101.3 216.9 98.4 Credit cost was at 15 bps, same QoQPBT 1,142 1,186 938 21.8 1,146 -0.4Tax Outgo 390 400 317 23.1 395.9 -1.4PAT 752 786 620 21.2 750.6 0.1

Key Metrics

GNPA 1,055 1,088 777 35.8 971.6 8.6Slippages increased marginally at | 281 crore vs. | 261 crore in Q2FY17. Sale to ARCsin Q3FY16 was | 21 crore

NNPA 439 461 322 36.4 400.7 9.5 PCR was maintained at 59%

Total Restructured assets 418 425 469 -10.7 421.4 -0.7Restructured loans as a percentage of total credit improved further to 0.41% from 0.49% as on Q1FY17

Credit book 113,081 110,005 88,419 27.9 102,770 10.0Deposit book 126,572 122,485 93,000 36.1 119,218 6.2

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Introduced % ChangeNet Interest Income 6,856 6,957 1.5 8,684Pre Provision Profit 6,097 6,374 4.6 7,838NIM(%) (calculated) 4.0 4.0 -3 bps 4.0

PAT 3,450 3,542 2.7 4,544ABV per share (|) 380.7 381.6 0.2 443.5

FY18E FY19E

Source: Company, ICICIdirect.com Research Assumptions

FY16 FY17E FY18E FY19E FY18E FY19ECredit growth (%) 28.5 27.9 25.0 25.4 25.5Deposit Growth (%) 25.5 36.1 24.5 24.2 25.4CASA ratio (%) 35.2 36.9 38.2 39.3 40.5NIM Calculated (%) 4.0 4.2 4.0 4.0 4.0Cost to income ratio (%) 46.5 46.7 46.4 46.0 47.0GNPA (| crore) 775.1 1,051.0 1,432.5 1,946.3 1,451.1NNPA (| crore) 321.0 439.0 638.5 691.4 623.5Slippage ratio (%) 1.2 1.6 0.9 0.8 0.8Credit cost (%) 0.8 1.0 0.7 0.5 0.6

Current Earlier

Source: Company, ICICIdirect.com Research


Company Analysis Ideal loan book; better than industry growth to stay...

IIB’s total credit book as on FY17 was at | 113080 crore. Credit traction has been strong at 27% CAGR in the past six years and way ahead of the industry, which grew at 18% CAGR. The composition/mix of the loan book is ideal with the consumer finance (CF) book and corporate banking book (CB book) accounting for 40.3% and 59.7%, respectively, as on FY17. Excluding the ~| 4100 crore acquired diamond portfolio, the CF proportion is 43%. The bank has guided at maintaining 1:1 distribution of the total loan between CF and CB book, going ahead. Thus, CF book could witness higher traction led by CV financing and non-vehicle loans.

The CF book, amounting to | 45529 crore as on FY17, is well diversified (see exhibit 1) but remains largely vehicle finance focused (~75% of CF book). Going forward, we expect the CF book to be a major driver of overall loan book traction. We factor in 31% CAGR in the CF book over FY17-19E to | 78130 crore. Exhibit 1: Non vehicle portfolio witnessing strong growth Consumer Finance Book| crore FY14 FY15 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17Comm. Vehicle 9,614 10,618 13,204 14,101 13,847 14,208 14,569 15,606Utility Vehicle 2,050 2,017 2,041 2,058 2,097 2,157 2,237 2,342Three Wheelers 1,932 1,843 2,019 2,045 2,133 2,274 2,381 2,374Two Wheelers 2,512 2,808 3,034 3,045 3,076 3,134 3,323 3,262Car loans 2,642 3,146 3,754 3,917 4,076 4,324 4,570 4,665Equip. financing 2,854 2,816 3,036 3,244 3,435 5,057 5,639 5,933Credit card 457 698 1,008 1,204 1,258 1,408 1,519 1,704Loan against prop. 2,473 3,705 4,759 5,248 5,585 5,872 6,429 7,051Personal.others etc 251 761 1,393 1,687 1,855 2,124 2,198 2,592Total 24,785 28,412 34,249 36,549 38,591 40,558 42,865 45,529YoY Growth 11 15 27 29 29 27 25 25


IIB’s CB book at | 67552 crore as on FY17 is largely inclined towards working capital finance. Further, the book is broadly diversified into three major categories (see exhibit 1) such as large corporate, mid-corporate and loans to small business. Again, in terms of sectors, the CB portfolio is well diversified among 13-14 sectors. We expect the CB book to post a CAGR of 21.1% in FY17-19E to | 99039 crore.

During Q2FY16, traction in the mid-corporate segment looks higher at 58% YoY as the bank incorporated the gems & jewellery portfolio of | 4100 crore that was acquired from RBS. IIB already has such a portfolio around | 1500 crore. With this acquisition, the bank becomes one of the largest financiers in this segment across industry. Exhibit 2: Break-up of corporate book Corporate Banking Book| crore FY14 FY15 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17Large corporates 15,086 19,964 22,022 25,258 27,323 27,588 28,244 31,477Mid corporates 9,693 11,455 16,042 16,624 17,119 19,284 19,766 22,203Small business 5,538 8,957 9,854 9,988 10,645 11,519 11,895 13,872Total 30,317 40,376 47,918 51,870 55,087 58,391 59,905 67,552YoY Growth 38.3 33.2 30.1 28.5 30.4 26.0 25.0 30.2


We expect the loan book traction to stay ahead of industry at 25% CAGR in FY16-18E.

We expect advances growth to stay well above the

system at 25% CAGR in FY17-19E to | 177168 crore

The bank’s FY17 loan growth of 27.8% YoY is >5x the

industry’s loan growth


Exhibit 3: Overall advances growth expected to be ahead of industry | crore FY14 FY15 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17Total Advances 55102 68788 82167 88419 93678 98949 102770 113081YoY Growth 24.3 24.8 28.7 28.5 29.7 26.4 25.1 27.9


Impressive improvement in liability franchise IIB’s deposits also witnessed a sharp traction of 23% CAGR in FY08-17 to | 126573 crore. More notable is the improvement in quality of the liability franchise. The CASA ratio in the period has doubled to 36.9% of deposits currently owing to a rising branch presence (up from 210 in FY10 to over 1200 as on FY17), innovative services & SA deregulation in Q2FY12. Going ahead, we expect the deposit base to increase at 24% CAGR in FY17-19E to | 195654 crore. We have built in a CASA ratio at ~39% by FY18E. A major upside to our CASA ratio estimates could be the opening up of the agency business of the RBI, which would lead to a sharp increase in CA balances for the bank. Currently, it is restricted to only a few large banks. High growth in deposits of 37.9% YoY in Q3FY17 was mainly due to demonetisation. Savings deposits grew 56% YoY and 22% QoQ (~50% of QoQ increase is attributed to demonetisation). In Q4FY17 also, savings deposits grew 57% YoY to | 27037 crore. Exhibit 4: Deposit traction remains strong; surge in SA balance | Crore FY14 FY15 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17Savings 9,915 12,944 16,125 17,246 19,091 20,567 25,175 27,037Current 9,776 12,356 14,107 15,478 15,952 20,467 18,987 19,609Term 40,811 48,835 56,191 60,276 66,725 71,279 75,056 79,926Total Deposits 60,502 74,134 86,423 93,000 101,768 112,313 119,218 126,572YoY Growth 11.8 22.5 24.6 25.4 31.0 38.9 37.9 36.1CASA Amount 19,691 25,300 30,232 32,724 35,043 41,034 44,162 46,646CASA% 32.5 34.1 35.0 35.2 34.4 36.5 37.0 36.9

Source: Company quarterly presentation, ICICIdirect.com Research

Margins to stay among best in class IIB’s FY17 calculated NIM of ~4% is highest after HDFC Bank and Kotak Mahindra Bank. We expect calculated NIMs to be maintained over FY17 -19E owing to enhanced growth in the CF book led by CV financing and non-vehicle book and a further improvement in the CASA franchise. The high yielding nature of the loan book as well as healthy CASA franchise has enabled IIB to maintain such strong margins of ~3.7-4% for the past four years. In consumer financing, blended yields are ~14% while in the corporate space yields are at ~10-11%. In the past four or five years, strong growth in the CASA franchise has helped manage to keep CoF (calculated) in the range of 8.0-8.3% across cycles. In Q4FY17, NIMs have stayed steady at ~4% despite ~30 bps decline in yield on loans, led by a higher fall in cost of deposit, further aided by increasing CASA. The management remains confident of maintaining quarterly NIMs at healthy levels. In a falling interest rate scenario, having ~72% of the loan book on fixed rate augurs well for IndusInd Bank’s margins.

We expect CASA ratio at ~39% by FY19E


Exhibit 5: Margins to stay healthy supported by improving CASA franchise and changing loan mix

4.25 3.95 4.03

10.359.67 9.88

11.46 11.66 11.26 10.8010.18 10.09 9.76 9.81

8.21

6.44 6.19

8.04 8.29 7.73 7.406.74 6.33 6.21 6.17

2.063.17

3.79 3.65 3.73 3.94 3.81 3.97

0

2

4

6

8

10

12

14

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E(%

)

NIM (calculated) Yield on average assets (calculated) CoF(calculated)

Source: Company quarterly presentation, ICICIdirect.com Research * YoA =yield on assets, CoF = cost of funds

Diversified book enables superior asset quality

The asset quality of IIB has fared well over the years. GNPA and NNPA ratios have declined from 3.1% and 2.3% in FY08 to 1% and 0.3% by FY11, respectively. They remain at these levels currently. The steady performance is owing to IIB’s peculiar loan mix. The CB book mainly consists of loans towards working capital, which is less risky than term loans. Further, the CB book is well diversified with exposure to stressed sectors such as iron & steel, commercial real estate (CRE), power, etc, at lower levels of ~1-2%. Also, the asset quality has been manageable in the CF book, which constitutes the balance half. In absolute terms, GNPA and NNPA were at | 972 crore and | 401 crore, respectively, as on Q3FY17. Restructured assets (RA) were at | 421 crore as on Q3FY17 accounting for only 0.41% of total loan book, which is one of the lowest in the industry. During Q2FY17, total slippages increased slightly to | 281 crore, mainly led by higher slippages from the corporate segment at | 111 crore vs. | 73 crore in Q2FY17. Slippage from consumer segment was at | 170 crore vs. | 188 crore QoQ. Going ahead, we expect absolute GNPA and NNPA of | 1451 crore and | 624 crore, respectively, as on FY18E. Overall, IIB’s asset quality remains manageable and appears better than the system.

Exhibit 6: Asset quality remains acceptable

621 563 570 602 681563

7751051

1433

1946

184 210 225 241 273 210 321 439639 691

1.1

0.8 0.8 0.8 0.8 0.80.9

1.01.1

0.3 0.3 0.3 0.3 0.3 0.30.4 0.4

0.50.4

0.9

-

500

1,000

1,500

2,000

2,500

FY14 FY15 Q1FY16 Q2FY16 Q3FY16 FY15E FY16 FY17E FY18E FY19E

(| C

rore

)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

(%)

GNPA NNPA GNPA ratio (RHS) NNPA ratio (RHS)

Source: Company quarterly press release and annual report, ICICIdirect.com Research

We have factored in calculated NIMs of ~4% over FY17E

& FY19E

Credit cost is also expected to be in the guided range of

60-70 bps in FY16-19E. We expect GNPA and NNPA ratios of 1.1% and 0.4%, respectively, by FY19E


Fee income: well diversified & growing at strong pace IIB’s other income constitutes ~40% of its operating income. In other income, the major component is the fee income that accounts for ~90%. Various sources of fee income include trade & remittances, forex income, distribution fees, general banking, processing fees & investment banking (IB). The bank also has a tie-up with HDFC Ltd for sourcing home loans on its behalf for which it gets commission of ~1% and additional 0.2% in insurance. The other income witnessed a strong CAGR of 35%. In that, core fee income grew at 39% CAGR in the last four years to | 2772 crore, as on FY16. The management has guided that fee income growth is likely to normalise in line with loan growth. We have factored in total other income CAGR of 18% to | 5838 crore in FY17-19E. Exhibit 7: Core fee income trend continues to be strong Other income break up (| Crore) FY11 FY12 FY13 FY14 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17Core fee income 629 913 1,239 1,610 726 774 782 826 885 996Securities/FX tradingothers 85 92 107 263 113 139 191 145 132 215

Break up of fee income (| Crore) FY11 FY12 FY13 FY14 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17Trade & Remittances 88 118 169 214 85 97 109 103 107 121Foreing Exchange Income 111 201 285 435 170 140 151 156 179 170Distribution Fees 161 245 270 281 126 138 137 156 181 241General Banking 88 110 139 145 46 48 56 49 64 63Loan Processing Fees 124 161 233 291 185 228 215 201 195 243Investment Banking 58 79 143 242 113 122 114 161 160 159Total 629 913 1,239 1,610 726 774 782 826 885 997


Exhibit 8: Expanding branch and ATM network

300 400 500 602 638 685 727 801 811 854 905 1000 1004 1035 10751200

594 692882

11101238 1277 1277

1487 1543 1578 16211800 1885 1935 1960 1988

0

500

1000

1500

2000

2500

FY11

FY12

FY13

FY14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17

Q4FY

17

Branches ATM


The bank added 200 new branches in FY17. Under Planning

Cycle 4, in FY18-20, the bank plans to double its branch

network to ~2000


Outlook and valuation In the past three or four years, IIB has traded at premium valuations compared to its private sector counterparts, except HDFC Bank and Kotak Mahindra Bank. This is due to a sustained and structural improvement in earnings (up 3x in the last four years) and best in class return ratios with RoE of ~18-19% and RoA of 1.6% in the past four years. Further, the major factor on the back of which the stock got re-rated from time to time was that such a strong performance has been accomplished in a strained economic environment wherein the banking system has been plagued by declining growth and increasing deterioration in asset quality. IIB, owing to its ideal mix of the loan book (niche presence in vehicle finance), improving CASA franchise and lower exposure to stressed sectors was able to ring fence itself from major systemic concerns and deliver strong results. IIB has continued to deliver a strong performance leading to continuous re-rating. Normalised return ratios of ~18% RoE & ~2% RoA provide comfort. We factor in FY19 estimates and expect PAT CAGR of 26% to | 4544 crore by FY19E. The bank is well placed to benefit from higher business momentum maintaining stable margin & lower capital usage, which will entail improvement in return ratios. We revise our TP higher to | 1570 (valuing at 3.5x FY17E ABV). We maintain BUY recommendation. The bank initiated planning cycle 4 for FY18-20 with focus on retail, MFI and doubling the assets book & reaching CASA ratio of 40%. Exhibit 9: Valuation

NII Growth PAT Growth P/E ABV P/ABV RoA RoE(| cr) (%) (| cr) (%) (x) (|) (x) (%) (%)

FY16 4,518 32.1 2,285.4 27.4 36.9 298.1 4.8 1.9 15.9 FY17E 6,068 34.3 2,868.2 25.5 29.5 336.0 4.2 1.8 14.9 FY18E 6,957 14.7 3,542.3 23.5 23.9 381.6 3.7 1.8 16.1 FY19E 8,684 24.8 4,544.3 28.3 18.6 443.5 3.2 1.9 17.9



Annual Report Analysis Management comments • In the CV segment, the latter part of FY16 saw a revival in the auto

segment with growth of ~4% YoY. Commercial vehicles were up 30% (vs. down 3% in FY15). Sale of LCVs continued to be stagnant. In the new vehicles segment, loans for commercial vehicles registered growth of over 50% to | 6900 crore. The bank’s focus during the year was on optimising the product mix to maximise yields while maintaining portfolio quality. Used-vehicle loans disbursed grew 26% to | 35 crore

• The credit cards business, acquired from Deutsche Bank in 2011, has

scaled up and grown in distribution and profitability while remaining focused on the quality of customer receivables. The commercial cards business (launched in Q4FY15) has grown. It provides sophisticated payment solutions for corporate to meet critical B2B payment requirements

• The bank entered into a corporate agency agreement with Tata AIA

Life Insurance Company. The life insurance business saw 80% YoY growth after creation of this partnership

• A special focus group to serve MNC client requirements was initiated

that has brought in a significant number of new-to-bank clients • The bank has built relationships with over 150 public-sector clients,

including Maharatnas and Navratnas. It won large collection mandates in issues of tax-free bonds of many PSUs. It also executed several e-procurement mandates for key PSUs, providing reliable technology-based solutions

• The bank was the market leader in launching the ‘Business

Correspondent Model’, with microfinance institutions providing micro loans to the weak sections of society. In microfinance, the bank works with more than 2.3 million clients, of which 1.8 million have been reached directly. All clients are women. They were given micro loans for productive purposes


Exhibit 10: CASA ratio crosses 35% mark...

29.3

32.534.1

35.2

0

10000

20000

30000

40000

FY11 FY12 FY13 FY14

(| C

rore

)

24.0

28.0

32.0

36.0

(%)

CASA CASA (%)

Source: Company, ICICIdirect.com, Research

Exhibit 11: …though concentration of deposits has risen

22

24

26

28

FY13 FY14 FY15 FY16

(%)

Deposit concentration (%)

Source: Company, ICICIdirect.com, Research ,* Top 20 depositors

Exhibit 12: Asset-liability maturity (ALM) gap reduces but still high

6561

54 55

4843

30

42

20

30

40

50

60

70

FY13 FY14 FY15 FY16

(%)

Liabilties < 1 year Assets < 1 year


Exhibit 13: GNPA remains on lower side

1.0%1.1%

0.8% 0.9%

0

200

400

600

800

1000

FY13 FY14 FY15 FY16

(| C

rore

)

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

(%)

GNPA GNPA (%)


Exhibit 14: Doubtful assets remain high

240.89 274.5 198307

91.22153.8

12213180.16

106.6153.6

261

0

200

400

600

800

1000

FY13 FY14 FY15 FY16

(| c

rore

)

Sub-standard Doubtful-1 Doubtful-2 Doubtful-3 Loss



Recommendation history vs. Consensus

0

200

400

600

800

1,000

1,200

1,400

1,600

Apr-17Feb-17Nov-16Sep-16Jun-16Apr-16Jan-16Nov-15Sep-15Jun-15Apr-15

(|)

74.0

76.0

78.0

80.0

82.0

84.0

86.0

88.0

90.0

(%)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date EventFY04 Ashok Leyland Finance (ALF), an NBFC, merged with IndusInd Bank, which enabled it to have a niche presence in the vehicle financing spaceJan-07 Aviva Life Insurance and IndusInd Bank announce their tie-up as bancassurance partnersFeb-08 A new management team headed by Romesh Sobti inducted from ABN Amro Bank NV, leading to a sharp turnaround of the bankMar-09 The new management focused on improving liability franchise as low cost CASA ratio improved from 15.7% in FY08 to 29.3% in FY13. On the lending side, it reduced

exposure to risky segments like unsecured loans and focused on high yielding-relatively less risky segments like CV, car loans, UV, three-wheelers, LAP, etc.

FY11 IndusInd Bank enters into an agreement with Deutsche Bank to acquire its credit card business in IndiaFY11 IndusInd Bank signs an MoU with HDFC Ltd for home loansFY11 Planning Cycle I (FY08-FY11) successfully achieved; launches Planning Cycle II (FY11-14) Dec-11 Savings rate deregulation in Q3FY12 wherein IIB offers higher rates (6% above | 1 lakh and 5.5% up to | 1 lakh)FY13 Branch network touches 500 and launches Planning Cycle III (FY14-FY16)Apr-13 On April 1, 2013, the bank included in the Nifty 50 benchmark indexMay-13 IndusInd was the best performing stock in the banking industry as it rose from | 45 in FY09 to all-time high of | 523.Jul-13 RBI tightens liquidity by raising MSF rate by 3% and various other measures. IndusInd impacted due to its high reliance on wholesale deposits (50%)Sep-13 Arrival of new RBI Governor changes sentiment, eases a few of the tight liquidity measures due to which the stock of IndusInd bounces backJun-15 Raises around | 5000 crore via QIP (including allotment to promoters)


Top 10 shareholders Shareholding Pattern Rank Name Latest Filing % OS Position (m) Change (m)1 Hinduja Group 31-12-2016 14.97% 89.56M +0.88M2 Prans Asset Management, Ltd. 31-12-2016 3.51% 21.01M 03 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-12-2016 1.64% 9.79M -0.63M4 Goldman Sachs Asset Management International 31-12-2016 1.60% 9.60M +1.50M5 UTI Asset Management Co. Ltd. 28-02-2017 1.53% 9.13M -0.08M6 Dia (Afrin) 31-12-2016 1.52% 9.10M +9.10M7 J.P. Morgan Asset Management (Hong Kong) Ltd. 31-03-2017 1.48% 8.85M -0.00M8 Birla Sun Life Asset Management Company Ltd. 31-03-2017 1.34% 8.03M -0.00M9 ICICI Prudential Life Insurance Company Ltd. 31-12-2016 1.23% 7.34M +0.19M10 Aasia Corporation L.L.P. 31-12-2016 1.19% 7.13M +0.89M

(in %) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17Promoter 14.90 14.88 14.86 14.99 15.00FII 43.30 43.48 43.81 43.14 43.00DII 11.40 11.82 11.59 12.44 13.00Others 30.40 29.82 29.74 29.43 29.00

Source: Reuters, ICICIdirect.com Research

Recent Activity

Buys Value Shares Sells Value SharesDia (Afrin) +148.33M +9.10M Franklin Advisers, Inc. -55.39M -2.81MGoldman Sachs Asset Management International +24.46M +1.50M Abraham (Paul) -17.73M -1.09MCapital International, Inc. +17.30M +0.96M DSP BlackRock Investment Managers Pvt. Ltd. -17.85M -0.81MAasia Corporation L.L.P. +14.43M +0.89M Franklin Templeton Asset Management (India) Pvt. Ltd. -10.30M -0.63MHinduja Group +14.36M +0.88M ICICI Prudential Asset Management Co. Ltd. -8.97M -0.46M

Investor name Investor name

Source: Reuters, ICICIdirect.com Research


.

Financial summary Profit and loss statement | Crore (Year-end March) FY16 FY17E FY18E FY19EInterest Earned 11,580.5 14,405.6 17,188.2 21,139.0 Interest Expended 7062.9 8337.7 10231.1 12455.0Net Interest Income 4,517.6 6,067.9 6,957.1 8,684.0 Growth (%) 32.1 34.3 14.7 24.8Non Interest Income 3295.8 4170.6 4925.7 5838.0Fees and advisory 2013.0 2556.5 3149.6 3880.3Treasury Income 158.9 222.5 267.0 320.4Other income 1123.9 1391.7 1509.1 1637.2

Net Income 7813.4 10238.6 11882.9 14521.9Employee cost 1235.7 1520.7 1735.3 1976.3Other operating Exp. 2398.9 3262.3 3773.1 4707.3Operating Income 4178.8 5455.7 6374.4 7838.3Provisions 673.5 1092.0 941.4 973.8PBT 3505.2 4363.7 5433.0 6864.5Taxes 1219.8 1495.4 1890.7 2320.2Net Profit 2,285.4 2,868.2 3,542.3 4,544.3 Growth (%) 27.4 25.5 23.5 28.3EPS (|) 38.4 48.0 59.2 76.0


Key ratios (Year-end March) FY16 FY17E FY18E FY19EValuationNo. of shares (crore) 59.5 59.8 59.8 59.8EPS (|) 38.4 48.0 59.2 76.0DPS (|) 5.7 7.2 8.8 11.3BV (|) 303.5 343.4 392.3 455.0ABV (|) 298.1 336.0 381.6 443.5P/E 36.9 29.5 23.9 18.6P/BV 4.7 4.1 3.6 3.1P/ABV 4.8 4.2 3.7 3.2Yields & Margins (%)Net Interest Margins 4.0 4.2 4.0 4.0Yield on assets 10.2 10.1 9.8 9.8Avg. cost on funds 6.7 6.3 6.2 6.2Yield on average advances 11.8 11.4 11.3 11.3Avg. Cost of Deposits 7.0 6.5 6.4 6.3Quality and Efficiency (%)Cost to income ratio 46.5 46.7 46.4 46.0Credit/Deposit ratio 95.1 89.3 89.7 90.6GNPA 0.9 0.9 1.0 1.1NNPA 0.4 0.4 0.5 0.4ROE 15.9 14.9 16.1 17.9ROA 1.9 1.8 1.8 1.9


Balance sheet | Crore (Year-end March) FY16 FY17E FY18E FY19ESources of FundsCapital 595.0 598.2 598.2 598.2Reserves and Surplus 17461.0 19940.3 22865.8 26618.9Networth 18056.0 20538.5 23464.0 27217.0Deposits 93001.7 126572.6 157569.8 195654.3Borrowings 23069.6 22455.8 24875.0 27582.6Other Liabilities & Provisions 3584.8 5416.2 5748.9 6109.4Total 137,712.1 174,983.1 211,657.7 256,563.3

Application of FundsFixed Assets 1269.5 1335.7 1539.3 1783.9Investments 31214.5 36707.9 42215.8 48550.2Advances 88419.0 113081.0 141298.2 177168.4Other Assets 5041.4 7394.4 8439.7 8961.2Cash with RBI & call money 11767.8 16464.1 18164.7 20099.7Total 137,712.1 174,983.1 211,657.7 256,563.3


Growth ratios (% growth) (Year-end March) FY16 FY17E FY18E FY19ETotal assets 26.2 27.1 21.0 21.2Advances 28.5 27.9 25.0 25.4Deposit 25.5 36.1 24.5 24.2Total Income 23.0 24.9 19.0 22.0Net interest income 32.1 34.3 14.7 24.8Operating expenses 33.3 31.6 15.2 21.3Operating profit 34.9 30.6 16.8 23.0Net profit 27.4 25.5 23.5 28.3Net worth 69.9 13.7 14.2 16.0EPS 13.4 24.8 23.5 28.3



ICICIdirect.com coverage universe (Banking) CMP M Cap(|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Bank of Baroda (BANBAR) 177 180 Hold 40,542 -23 7 12 -7.6 23.6 15.0 2.1 2.0 1.8 -0.8 0.2 0.4 -13 4 6Punjab National Bank (PUNBAN) 154 160 Buy 33,792 -20 8 12 -7.6 18.5 12.5 8.4 4.6 3.0 -0.6 0.3 0.3 -10 4 6State Bank of India (STABAN) 289 335 Buy 235,105 13 13 19 22.6 22.2 15.4 2.5 1.7 1.6 0.5 0.4 0.5 7 6 8Indian Bank (INDIBA) 256 305 Buy 12,406 15 28 33 17.3 9.2 7.7 1.2 1.2 1.1 0.4 0.6 0.7 5 8 9Axis Bank (AXIBAN) 493 460 Hold 120,339 35 14 28 14.3 35.5 17.8 2.3 2.6 2.1 1.7 0.6 1.1 17 6 11City Union Bank (CITUNI) 148 166 Buy 9,028 7 8 10 19.9 18.3 15.4 3.2 2.9 2.4 1.5 1.5 1.5 16 15 15DCB Bank (DCB) 178 165 Hold 4,946 7 7 8 26.1 25.3 21.0 3.1 2.8 2.3 1.1 0.9 1.0 12 11 12Federal Bank (FEDBAN) 91 110 Buy 15,951 3 5 7 33.0 20.0 13.5 2.2 2.1 1.8 0.5 0.8 1.0 6 9 12HDFC Bank (HDFBAN) 1,447 1,500 Buy 368,187 49 58 71 29.8 25.1 20.5 5.1 4.4 4.0 1.9 1.9 1.9 18 19 20IndusInd Bank (INDBA) 1,426 1,570 Buy 85,855 38 48 59 37.1 29.7 24.1 4.8 4.2 3.7 1.9 1.8 1.8 16 15 16Jammu & Kashmir Bk(JAMKAS) 77 80 Buy 3,818 9 -28 6 9.0 -2.7 11.9 0.9 1.6 1.6 0.5 -1.6 0.3 7 -23 6Kotak Mahindra Bank (KOTMAH) 878 840 Hold 235,105 11 18 20 77.1 49.6 43.2 7.1 5.3 4.8 1.1 1.7 1.7 9 12 11Yes Bank (YESBAN) 1,606 1,400 Hold 73,551 48 60 74 33.4 26.6 21.8 5.0 3.4 2.9 1.6 1.7 1.8 21 20 19

Sector / CompanyRoE (%)EPS (|) P/E (x) P/ABV (x) RoA (%)



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


ANALYST CERTIFICATION We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

IndusInd Bank (INDBA) | 1420content.icicidirect.com/mailimages/IDirect_IndusIndBank_Q4FY17.pdf ·...

Documents

Transcript of IndusInd Bank (INDBA) | 1420content.icicidirect.com/mailimages/IDirect_IndusIndBank_Q4FY17.pdf ·...