KRChoksey bullish on this private lender; sees upside of up to 48%

IndusInd Bank Ltd (IIB) has transformed into one of the fastest-growing private banks in India. The bank is well-positioned to grab opportunities and deliver healthy credit growth, which a robust liability franchise will aid, highlighted brokerage firm KRChoksey.
 
With the market capitalisation of more than Rs 72,000 crore, the shares stand higher than 5 day, 20 day and 50 day moving averages but lower than 100 day and 200 day moving averages.
 
The stock ended 0.42 per cent higher at Rs 937.25 against the previous close of Rs 933.35. We apply a P/B multiple of 1.9x to the FY24E adj. BVPS of Rs 730 to arrive at a target price of Rs 1,387 per share an upside of 48 per cent over the current market price, the brokerage house said.
 
KRChoksey noted that the margin expansion will likely be backed by lowering the cost of funds combined with liquidity mobilisation. The surplus liquidity is expected to reduce by Q4FY22E, boosting the margins. The fee income is anticipated to outpace asset growth in the coming years.
 
“Overall, we expect PAT growth of CAGR 51.5 per cent between FY21 to FY24E on the back of strong growth in NII, improving cost efficiencies and reducing credit cost. Asset quality has been seeing a consistent improvement resulting in lower credit cost and a comfortable level of PCR,” it added.
 
It further added that the returns ratios are expected to improve with improved overall business traction, healthy earnings, cost efficiency with increasing digital initiatives, and asset quality with sustainable PCR.
 
“We expect ROE/ROA to reach 16.8 per cent/1.9 per cent respectively by FY24E from 7.6 per cent/0.9 per cent in FY21. The capital adequacy for IIB stands at 18.06 per cent as of 31st December 2021, well above the regulatory requirement,” KRChoksey said.
 
IndusInd Bank reported a 50 per cent year-on-year (YoY) jump in its consolidated net profit for the October-December quarter at Rs 1,242 crore on the back of lower provisions. On a quarter-on-quarter (QoQ) basis, profit was higher by 8 per cent.
 
The bank’s net interest income (NII) rose 11 per cent YoY and 4 per cent QoQ to Rs 3,793 crore, while net interest margin contracted 2 basis points (bps) YoY and expanded by 3 bps QoQ to 4.10 per cent.
 
On the asset front, the gross non-performing assets stood at 2.48 per cent at the end of December 2021 quarter as against 2.77 per cent at the end of September quarter, while net non-performing assets were at 0.71 per cent as compared to 0.80 per cent as of September 30, 2021. The bank’s liquidity coverage ratio stood at 137 per cent.