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RESULT UPDATE
INDUSIND BANK
Forex, IB income does the trick again
India Equity Research| Banking and Financial Services
IndusInd Bank (IIB) reported Q2FY15 PAT of INR4.3bn (up 30% YoY),
largely in line with estimates. Key highlights were: 1) marginal QoQ dip in
NIMs to 3.63% on 17bps QoQ fall in loan yields, following continued loan
mix tilt in favour of corporate book where yields have suffered a massive
fall (55bps in past 1 year); 2) healthy core fee income (up 31% YoY) led by
forex-related business and investment banking; and 3) credit cost was
well contained at 10bps (versus 15bps in Q1FY15). Strong traction was
seen in SA deposits - up 8% QoQ, 33% YoY and now accounts for 17.3% of
deposits taking CASA to 34%. Given improving retail liabilities, high RoAs
and well-capitalised position (12% Tier 1), we expect minimal execution
risk. Assigning 2.9x FY16E P/ABV, our TP is INR677. Maintain ‘BUY’.
EDELWEISS 4D RATINGS
Absolute Rating
BUY
Rating Relative to Sector
Outperformer
Risk Rating Relative to Sector
Low
Sector Relative to Market
Overweight
MARKET DATA (R: INBK.BO, B: IIB IN)
CMP
: INR 635
Target Price
: INR 677
52-week range (INR)
: 648 / 369
Share in issue (mn)
: 528.1
M cap (INR bn/USD mn)
: 335/ 5,476
Avg. Daily Vol.BSE/NSE(‘000) : 1,763.6
Includes Q2FY15/ Q1FY15 earnings con-call highlights
NIMs dip 3bps QoQ to 3.63% on fall in corporate yields
SHARE HOLDING PATTERN (%)
NIMs came off 3bps QoQ to 3.63% (3.75% on Q4FY14) following 17bps decline in loan
yield, as the loan mix continued to be tilted in favour of lower yielding corporate book
(57% of advances). However, IIB stated loan mix is likely to rebalance starting H2FY15
as growth in commercial vehicle (CV) market returns, a glimpse of which was seen in
September, which in turn will aid NIMs going forward.
Current Q4FY14
Q3FY14
Promoters *
15.2
15.2
MF's, FI's & BK’s
8.6
7.5
7.2
FII's
43.6
43.3
41.1
Others
32.7
34.1
36.4
15.2
:
* Promoters pledged shares
(% of share in issue)
NIL
Asset quality holding steady, marginal uptick in CV/CE segments
IIB extended its commendable performance on asset quality front with credit cost
contained at mere 10bps. GNPLs remained benign; however, some uptick continued in
the CV/CE segment. The guidance is for reducing stress in the CV segment GNPLs with
the bank highlighting clear signs of improvement over the next few quarters. The
restructured book increased a tad to 0.5% (0.4% in Q1FY15).
Outlook and valuations: Superior return ratios; maintain ‘BUY’
Credit growth of 23% plus, improved liability franchise, superior fee income profile,
stable credit cost and new business initiatives (tractor financing, ARC, etc) will help IIB
generate superior return ratios (RoA/RoE of 2%/18-20%). We maintain ‘BUY/SO’
expecting the stock to perform even from the current valuations of 2.7x FY16E
adjusted book.
Financials
Year to March
Q2FY15 Q2FY14 Growth %
Q1FY15 Growth %
FY14
FY15E
FY16E
PRICE PERFORMANCE (%)
Stock
Nifty
EW Banks and
Financial
Services Index
1 month
0.6
(2.7)
3 months
18.4
5.7
8.4
12 months
48.4
29.3
48.4
Nilesh Parikh
+91 22 4063 5470
nilesh.parikh@edelweissfin.com
Kunal Shah
+91 22 4040 7579
kunal.shah@edelweissfin.com
Net int. inc. (INR mn)
8,329
6,999
19.0
8,007
4.0
28,907
34,852 44,031
Suruchi Chaudhary
Net profit (INR mn)
4,300
3,302
30.2
4,211
2.1
14,080
18,201 22,850
+91 22 6623 3316
suruchi.chaudhary@edelweissfin.com
B/V per share (INR)
EPS (INR)
8.2
6.2
31.8
7.9
3.6
Price/ Book (x)
Price/ PPOP (x)
Price/ Earnings (x)
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
172.0
201.1
238.2
26.8
34.6
43.5
3.7
3.2
2.7
13.1
23.7
10.9
18.3
8.5
14.6
Prakhar Agarwal
+91 22 6620 3076
prakhar.agarwal@edelweissfin.com
October 13, 2014
Edelweiss Securities Limited
(3.6)
Banking and Financial Services
Loan mix still tilted towards corporates, rebalancing post H2FY15
In line with its guidance of maintaining above-industry loan growth, IIB delivered healthy loan
book growth of 22% YoY, albeit lower by its own standard. The surge was largely led by the
37% YoY rise in corporate advances (CCB). During the quarter, large part of growth was driven
by loans to large corporates, which contributed ~42% to incremental loan growth. On the
other hand, loans to small businesses continued to register healthy growth moving up 51%
YoY, albeit on a low base. However, the rapid growth is not to be correlated with upcoming
asset quality risks and management continues to be confident of the quality of loans being
written. The high growth in CCB segment takes it to 57% of the loan book, though now
generating lower yield of 11.33% (20bps QoQ fall and 56bps drop in past one year). The
consumer finance division grew at an anemic 7% YoY- a reflection of repayments offsetting
fresh origination; however CV portfolio after having shrunk in the past few quarters clocked a
positive QoQ number with September being a turnaround quarter. Further, management
highlighted large part of stress is already behind with growth likely to return starting H2FY15.
Following this, management guided for rebalance of loan mix in favour of retail loans, and over
12-15 months retail and corporate mix should be almost 50:50 once again.
Core fee income led by forex; investment banking aids profitability
IIB’s Q2FY15 earnings were largely aided by 34% YoY growth in other income, driven by
higher core fee income. During the quarter, core fee income remained strong, registering
31% YoY growth, ahead of 22% YoY growth in loans, led by healthy forex flow. This was
further supported by strong investment banking (IB) revenue (up 41%), as the bank
capitalises on the sweet spot offered by catering to the under-serviced needs of the midcorporate segments by leveraging strength of its balance sheet. Over a period of time, the
bank has seen increased contribution from forex income and IB fees (from 21% in FY10 to
over 45% currently), both of which are lumpy in nature. However, management stays
confident of its origination team, which along with the advisory team and project finance
unit will ensure that the IB practices will continue to deliver healthy growth rates, despite
rising competition. This particular quarter had higher contribution from distribution income
too (up 13% QoQ) on higher mutual fund income.
Key highlights
2
•
Accelerated expansion of branch network: Added 67 branches in Q2FY15. Accordingly,
IIB will have 800 branches by March’15 as against 750 targeted earlier.
•
CV performance: Auto and CV markets now showing more distinct trend of an upturn
— after a slow July and August, September saw net accretion to CV book after a long
time. Should the growth continue, CV loan book growth should be better in Q3 and Q4.
•
ARCs: Sold INR170mn to ARCs during the quarter (versus INR160mn in earlier quarter).
Restructuring during the quarter was of INR700mn at 50bps of advances.
•
Provision on unhedged foreign currency as of H1FY15 was INR200mn - annualised
expected at INR400mn for FY15; there was no provisioning in Q2FY15 as it was
provided in Q1FY15 itself.
•
SA deposits: Savings bank rate lowered from 5.5% to 4.5% for deposits less than
INR0.1mn. This will help reduce overall cost of SA deposits.
Edelweiss Securities Limited
IndusInd Bank
Table 1: Higher-than-industry loan growth driven by corporate loan book
(INR mn)
Advances
YoY
QoQ
Deposits
YoY
QoQ
CD ratio
CASA
Q1FY13
371,835
31.0
6.0
447,854
27.0
5.7
83.0
27.9
Q2FY13
394,272
30.8
6.0
477,645
24.5
6.7
82.5
28.0
Q3FY13
424,260
30.8
7.6
510,980
26.0
7.0
83.0
28.7
Q4FY13
443,206
26.4
4.5
541,167
27.7
5.9
81.9
29.3
Q1FY14
474,250
27.5
7.0
556,600
24.3
2.9
85.2
30.0
Q2FY14
489,681
24.2
3.3
530,577
11.1
(4.7)
92.3
31.8
Q3FY14
524,690
23.7
7.1
562,470
10.1
6.0
93.3
32.2
Q4FY14
551,018
24.3
5.0
605,023
11.8
7.6
91.1
32.6
Q1FY15
586,640
23.7
6.5
638,930
14.8
5.6
91.8
33.3
Q2FY15
599,313
22.4
2.2
659,961
24.4
3.3
90.8
34.0
Table 2: Margin declined 3bps QoQ to 3.63% following 17bps QoQ dip in advance yield
(%)
Yield on Advances
Cost of deposits
NIMs
Q1FY13
14.0
8.9
3.2
Q2FY13
13.9
8.7
3.3
Q3FY13
13.7
8.4
3.5
Q4FY13
13.5
8.1
3.7
Q1FY14
13.4
8.2
3.7
Q2FY14
13.5
8.2
3.7
Q3FY14
13.8
8.4
3.7
Q4FY14
13.7
8.1
3.8
Q1FY15
13.5
8.2
3.7
Q2FY15
13.3
8.0
3.6
Table 3: Core fee income growth led by forex fees and investment banking (INR mn)
Core fees income
Q2FY15 Q2FY14 YoY (%) Q1FY15 QoQ (%)
Trade Fees (LC, BG, Remittances)
615
500
23.0
615
0.0
Processing Fees & other charges
901
689
30.7
861
4.7
FX – Client
1394
1029
35.5
1349
3.4
TPP (Insurance ,MF ,etc )
847
677
25.1
747
13.4
Investment Banking Income
928
659
40.9
867
7.0
Gen. Bkg. / Other Income
408
341
19.7
427
(4.3)
Table 4: Asset quality performance continues to shine
Opening gross NPA
CCB
CFD
Additions
CCB
CFD
Deductions
CCB
CFD
Closing gross NPA
CCB
CFD
Q113
1.0
0.6
1.3
0.3
0.3
0.3
0.2
0.0
0.4
1.0
0.8
1.1
Q213
1.0
0.8
1.0
0.3
0.2
0.3
0.2
0.0
0.3
1.0
1.0
1.1
Q313
1.0
0.9
1.0
0.4
0.5
0.4
0.4
0.5
0.3
1.0
0.9
1.1
(%)
Q413
1.0
0.8
1.1
0.3
0.1
0.5
0.2
0.0
0.4
1.0
0.9
1.2
Q114
1.0
0.8
1.1
0.2
0.1
0.4
0.1
0.0
0.3
1.1
0.9
1.2
Q214
1.1
0.9
1.2
0.3
0.2
0.4
0.2
0.0
0.4
1.1
1.1
1.1
Q314
1.1
1.0
1.1
0.4
0.2
0.5
0.2
0.0
0.4
1.2
1.2
1.2
Q414
1.2
1.1
1.2
0.3
0.1
0.6
0.4
0.2
0.6
1.1
1.0
1.3
Table 5: GNPA improvement across the board expect CV/CE
Gross NPA (%) Q213 Q313 Q413 Q114 Q214 Q314
CV
0.8
0.9
1.0
1.2
1.1
1.3
Utlity
0.9
0.8
0.9
0.9
0.8
0.8
Const equip
0.8
1.0
1.2
1.2
1.2
1.3
Small CV
0.9
0.9
0.8
0.8
0.8
0.7
2W
3.4
3.6
3.0
2.9
3.0
2.7
Cars
0.7
0.6
0.7
0.7
0.4
0.4
Q115
1.1
0.9
1.2
0.3
0.2
0.4
0.2
0.1
0.4
1.1
1.0
1.3
Q414
1.4
0.9
1.3
0.9
2.5
0.5
Q115
1.4
0.8
1.6
0.8
2.5
0.5
Q215
1.1
1.0
1.2
0.2
0.0
0.4
0.2
0.0
0.4
1.1
1.0
1.2
Q215
1.5
0.8
1.6
0.7
2.4
0.4
Source: Company
3
Edelweiss Securities Limited
Banking and Financial Services
Table 6: NNPA profile
NNPA (%)
Q213
CV
0.2
Utlity
0.1
Const equip
0.1
Small CV
0.6
2W
1.4
Cars
0.2
Q313
0.3
0.1
0.3
0.5
1.5
0.1
Q413
0.4
0.3
0.4
0.3
1.4
0.3
Q114
0.5
0.3
0.4
0.3
1.3
0.3
Q214
0.4
0.2
0.4
0.2
1.4
0.2
Q314
0.5
0.2
0.5
0.1
1.3
0.1
Q414
0.6
0.3
0.5
0.3
1.1
0.2
Q115
0.6
0.2
0.8
0.1
1.1
0.1
Q215
0.6
0.1
0.8
0.0
1.0
0.1
Chart 1: Loan book still tilted towards corporates; rebalancing post H2FY15
100.0
80.0
48
48
51
49
51
53
55
57
57
52
52
49
51
49
47
45
43
43
(%)
60.0
40.0
20.0
0.0
Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15
CFD
CCB
Table 7: Loan book composition
(%)
Commercial vehicles
Utility vehicles
Cars
Small CV
Equipments
Others (home and personal)
Loan to large corporates
Loan to mid corporates
Loan to small businesses
Q312
23.0
3.5
3.8
10.0
6.1
2.1
28.1
14.7
8.8
Q412
23.6
3.5
4.0
9.7
6.1
2.3
27.1
15.2
8.5
Q113
23.7
3.8
4.3
9.6
6.3
2.6
26.7
14.8
8.1
Q213
24.2
4.1
4.6
9.6
6.3
3.1
25.8
14.5
7.9
Q313
23.0
4.1
4.7
9.4
6.3
3.5
26.4
14.6
7.8
Q413
22.5
4.0
4.6
9.1
6.1
4.2
26.7
14.6
8.1
Q114
21.4
4.1
4.7
8.7
6.0
4.4
26.5
15.6
8.7
Q214
21.0
4.1
4.8
8.8
5.9
4.8
26.4
15.6
8.7
Q314
19.0
3.9
4.9
8.6
5.6
5.0
27.2
17.0
8.9
Q414
17.4
3.7
4.8
8.1
5.2
5.8
27.4
17.6
10.1
Q115
17.5
3.7
5.0
8.2
5.2
6.4
30.5
18.5
11.5
Q215
17.6
3.7
5.3
8.3
5.1
7.2
31.5
18.5
11.7
Source: Company
4
Edelweiss Securities Limited
IndusInd Bank
Chart 2: CASA inches up to 34% with SA proportion higher than CA
35.0
28.0
16.4
11.4
14.2
16.6
16.9
16.6
16.3
15.7
15.6
15.7
16.2
16.8
16.6
(%)
21.0
13.0
16.5
17.3
12.1
16.2
16.6
11.1
14.0
7.0
0.0
Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215
CA
SA
Chart 3: Core fee growth higher than loan book growth; forex, IB the bright spots
70.0
56.0
(%)
42.0
28.0
14.0
Core fee income
Q215
Q115
Q414
Q314
Q214
Q114
Q413
Q313
Q213
Q113
Q412
Q312
0.0
loan growth
Source: Company
5
Edelweiss Securities Limited
Banking and Financial Services
Financial snapshot
Year to March
Interest on advances
Interest on investments
Interest on other resources
Other interest income
Interest income
Interest exp
Net int. inc. (INR mn)
Fee income
Other income
Operating expenses
Staff costs
Other opex
Pre prov op profit (ppop)
Provisions
Profit before tax
Provision for taxes
PAT
Diluted EPS (INR)
(INR mn)
% change
18.5
12.5
40.2
33.3
17.8
17.2
19.0
34.0
34.0
26.1
18.5
30.8
23.2
(17.6)
30.5
31.1
30.2
31.8
Q2FY15
19,087
4,113
584
2
23,786
15,457
8,329
5,583
5,583
6,667
2,393
4,274
7,245
732
6,513
2,213
4,300
8.2
Q2FY14
16,113
3,655
416
2
20,186
13,186
6,999
4,167
4,167
5,288
2,020
3,268
5,879
889
4,991
1,688
3,302
6.2
Ratios
NII/GII (%)
Cost/income (%)
Provisions / PPOP
Tax rate (%)
35.0
47.9
10.1
34.0
34.7
47.4
15.1
33.8
Balance sheet data (INR bn)
Advances
Deposits
CD Ratio
Provisioning coverage (%)
599
660
91
70.2
490
531
92
80.0
22.4
24.4
587
639
92
70.1
6,545
1,950.0
1
0.3
5,464
1,092.4
1
0.2
19.8
6,544
1,955.6
1
0.3
Asset quality
Gross NPA
Gross NPA (%)
Net NPA
Net NPA (%)
6
Q1FY15
18,374
4,113
485
1
22,973
14,967
8,007
5,764
5,764
6,278
2,203
4,076
7,492
1,104
6,388
2,177
4,211
7.9
% change
3.9
0.0
20.4
42.9
3.5
3.3
4.0
(3.1)
(3.1)
6.2
8.7
4.9
(3.3)
(33.7)
2.0
1.6
2.1
3.6
YTD15
37,461
8,226
1,068
3
46,759
30,423
16,336
11,346
11,346
12,945
4,596
8,350
14,737
1,836
12,901
4,390
8,511
16.0
FY15E
79,829
5,592
214
96,868
62,016
34,852
22,933
23,733
27,092
10,238
16,854
30,693
3,987
27,506
9,305
18,201
34.6
FY16E
96,277
7,333
233
116,952
72,921
44,031
28,387
29,387
33,343
12,950
20,393
39,075
5,543
34,532
11,682
22,850
43.5
35.0
47.9
10.1
34.0
36.0
46.2
13.0
33.8
37.6
45.4
14.2
33.8
2.2
3.3
599
660
91
70.2
683
733
93
66.6
861
932
92
68.7
0.0
6,545
1,950
1
0.3
8,425
2,810.4
1
0.4
11,175
3,498.0
1
0.4
34.9
45.6
14.7
34.1
(2.7)
(2.7)
Edelweiss Securities Limited
IndusInd Bank
IndusInd Bank - Q2FY15 earnings call takeaways
•
Auto and CV market now showing more distinct trend of an upturn: after slow July
and August, September saw net accretion to CV book after a long time. Should the
growth continue, CV loan book growth should be better in Q3 & Q4.
•
Non vehicle retail book also becoming meaningful - LAP is now 5% of the book.
•
Corporate book remains at 53% and retail at 47%. As vehicle finance book alongwith
non-vehicle retail book, it looks to rebalance loan book breakup to 50:50.
•
Yields have fallen on corporate side by >20 bps to 11.33% - had higher component of
foreign currency lending now at INR 50 bn (compared to INR 30 bn in Q2FY14).
•
Accelerated expansion of branch network: added 67 branches in Q2FY15. So now will
achieve 800 branches by March 15 as against 750 branches targeted earlier.
•
Has reduced savings bank rate from 5.5% to 4.5% for deposits less than INR 0.1 mn.
This will help reduce overall cost of SA deposits.
•
Very robust increase in distribution income from MFs in particular, which has led to
25% YoY growth in distribution fees.
•
Will not give up traction on non-funded exposure as it carries lower risk weight and is
also ROA accretive as it adds to fee income. It compares itself with foreign banks and
sees huge potential in scaling up non-fund based exposure as compared to total asset
base.
•
Going forward, growth momentum will be protected by traction picking up in vehicle
finance portfolio.
Asset quality behaviour
•
Credit cost of 10 bps against 15 bps last quarter. Hardly any slippage in corporate book.
•
Uptick in restructured book from 0.4% in Q1FY15 to 0.52% in Q2FY15 as 4-5 accounts
got added during the quarter equivalent to INR 700 mn.
Other highlights
•
Fee income breakup: Retail : corporate is 50:50.
•
Provision on unhedged foreign currency as of H1FY15 was INR 200 mn - annualized
expected at INR 400 mn for FY15 and there was no need of provisioning in Q2FY15 as
this was provided in Q1FY15 itself.
•
Used vehicle portfolio is 15% of overall CV portfolio.
•
Retail lending yields have gone up as personal vehicles are growing faster than
commercial vehicles. Moreover in non-vehicle retail portfolio, high yielding personal
loans/credit cards also contributing to growth.
New initiatives
7
•
Video branch service network.
•
Launched first digital branch in Gurgaon
Edelweiss Securities Limited
Banking and Financial Services
IndusInd Bank – Q1FY15 earnings call takeaways
•
Regulations to hit all banks – Provisions for unhedged exposures of funded loans
•
Industry bytes – rates unlikely to drop in a hurry, liquidity conditions healthy
•
Increased provisions: INR200mn is the hit on account of provision for the unhedged
exposures. The actual requirement was INR100mn. This is on amortization basis but the
annual charge will not be INR800mn. With the data coming in from borrowers the
provisions will be controlled. Very small portion of the borrowers fell in the highest
80bps provision cost category. The provision is a part of standard asset provision.
•
Consumption of capital: Very high QoQ due to 1) higher capital on unhedged
exposures and 2) capital usage due to credit value adjustment of derivatives. Together
the hit because of this has been 20bps of CRAR due to unhedged and slightly more due
to credit value adjustment (of the total 70bps crop). Corporate book tends to use for
capital than the retail book.
•
Growth drivers – Largely corporate, within the retail book the vehicles portion has not
seen growth
•
NIM decline due to mix tilt towards the corporate loans; rebalancing of the book to
start from H2FY15 onwards
•
On succession: RBI is yet not out with a policy on retirement age for private banks.
Currently the extension for CEO is till January 2015. Board of the bank is very clear in
case the extension from RBI doesn’t come. Succession will be from within. Team is
very stable and will likely be so.
•
Processing fee is healthy due to renewal fees also.
•
SA cost is down from 6.6% to 6.3%.
•
6-10 transactions generally done in the IB domain every quarter.
•
Have emerged as the best collection bank for IPOs and that is helping with the CA also.
•
170000 SA customers added in Q1FY15
•
Forex income is not from the trading side and is largely from the clients’ side. Well
distributed between corporate and retail. Technology being used to capture small
ticket transactions which has higher margins also. On corporate side getting deeper
for the same clients. No drop in this line item expected.
•
Increase in cost of deposits is due to lower average CA.
•
The yield on the corporate book is dropping as even though the bank is going into
relatively riskier sectors the customers within the sector is the best in class.
Asset quality behaviour
8
•
Asset quality steady, restructured book has seen marginal grown
•
JLF formation is work in progress. The transition from JLF to CDR is not clear.
•
CV performance: Very optimistic but business is not happening. Used market is also
anticipated to pick up. But Q2 being a monsoon quarter will not see much activity.
September onwards market will improve as stress on truck operator earnings is
reducing. Collection efficiency is seen improving. There is no over capacity in the
system now. Tipper market is expected to do well with the mining activity picking up.
•
Power sector exposure is largely for working capital.
Edelweiss Securities Limited
IndusInd Bank
New initiatives
9
•
Video branch launched
•
Tractor financing vertical has been launched-Yields are very distributed (12-36%). The
bank will be closer to the upper range. Looking at 400-500cr for the current year.
INR10bn to be added next year and INR20bn the year after.
•
Want to bring the cost income to closer to 40% but 150 branches are to be opened in
the current fiscal which will keep costs elevated.
Edelweiss Securities Limited
Banking and Financial Services
Company Description
IndusInd Bank is one of the new-generation private-sector banks in India which commenced
its operations way back in 1994. It was founded by Srichand P. Hinduja, a leading nonresident Indian businessman and head of the Hinduja Group. In 2004, the bank merged with
Ashok Leyland Finance, a commercial-vehicle-finance focused NBFC.
Currently bank caters to the needs of both consumer and corporate customers. It has a
robust technology platform supporting multi-channel delivery capabilities. IndusInd Bank
has 685 branches, and 1,277 ATMs spread across geographic locations of the country
Investment Theme
Since management change, market has consistently rewarded IIB for its delivery on
improvement in profitability metrics – ROA, ROE. IIB has a successful track record of growth
and has raised capital at every stage at richer valuations to fund its expansion. Over the
years, the bank has garnered support from strategic investors to prop up its ambitious
growth plans. Given improving retail liabilities, high RoAs and well-capitalized position (Tier
1 at 12%) we expect execution risk to be minimal. Improving liability franchise and above
average earnings growth at strong return ratios will ensure that IIB will be able to bridge the
gap in discount to HDFC Bank.
Key Risks
•
10
The bank plans to achieve the desired CASA growth by expanding its branch network.
Risk emanates from the fact that if the bank is not able to achieve the desired level of
integration among branches then cost may shoot up.
Edelweiss Securities Limited
IndusInd Bank
Financial Statements
Key Assumptions
Year to March
Income statement
FY13
FY14
FY15E
FY16E
Macro
Year to March
(INR mn)
FY13
FY14
FY15E
FY16E
Interest income
Interest expended
69,832
47,504
82,535
53,628
96,868
62,016
116,952
72,921
GDP(Y-o-Y %)
Inflation (Avg)
5.0
7.4
4.7
6.2
5.4
5.5
6.3
6.0
Net interest income
22,329
28,907
34,852
44,031
Repo rate (exit rate)
7.5
8.0
8.0
7.3
Non interest income
13,630
18,905
23,733
29,387
54.5
60.5
60.0
59.0
- Fee & forex income
12,751
17,869
22,337
27,697
- Misc. income
180
516
597
690
699
520
800
1,000
USD/INR (Avg)
Sector
Credit growth
14.7
14.0
16.0
18.0
- Investment profits
Deposit growth
Net revenue
35,958
47,812
58,585
73,418
Operating expense
17,564
21,853
27,091
33,342
6,615
8,093
10,238
12,950
- Other opex
10,949
13,760
16,853
20,392
Company
Preprovision profit
18,395
25,960
31,494
40,076
Operating metric assumptions (%)
Provisions
2,636
4,681
3,987
5,543
Loan loss provisions
2,618
3,801
3,987
5,543
13
876
-
-
13.5
15.0
16.0
18.0
CRR
4.3
4.3
4.3
4.3
SLR
23.0
23.0
23.0
23.0
7.8
8.5
7.8
7.0
G-sec yield
Yield on advances
- Employee exp
14.1
13.3
12.9
12.5
7.5
7.2
7.1
7.1
11.1
10.7
10.5
10.3
Other provisions
5
5
-
-
Net interest margins
3.5
3.7
3.8
3.9
Profit before tax
15,759
21,278
27,507
34,533
Cost of funds
8.0
7.5
7.1
6.8
Provision for tax
5,147
7,198
9,305
11,682
Cost of deposits
8.3
7.6
7.6
7.1
Profit After Tax
10,612
14,080
18,202
22,851
Cost of borrowings
8.0
8.1
7.0
6.7
Reported PAT
10,612
14,080
18,202
22,851
Spread
3.1
3.2
3.4
3.5
Diluted EPS (INR)
20.3
26.8
34.6
43.5
3.0
4.0
4.8
5.5
17.3
15.3
15.9
14.7
Yield on investments
Yield on asset
Balance sheet assumption (%)
Investment depreciation
Dividend per share (INR)
Credit growth
27.7
25.3
24.0
25.9
Deposit growth
27.7
11.8
21.1
27.2
SLR ratio
22.2
20.4
20.4
20.4
Growth ratios (%)
Low-cost deposits
29.3
32.5
33.0
33.3
Year to March
FY13
FY14
FY15E
FY16E
0.3
0.3
0.4
0.4
70.1
70.4
66.6
68.7
NII growth
Fees growth
31.0
35.5
29.5
40.1
20.6
25.0
26.3
24.0
Incremental slippage
1.3
1.4
1.4
1.4
Opex growth
30.8
24.4
24.0
23.1
Net NPA / Equity
1.8
2.0
2.7
2.8
PPOP growth
34.6
43.8
20.7
27.3
Capital adequacy
15.4
14.8
14.3
13.8
PPP growth
34.0
41.1
21.3
27.2
Provisions growth
45.9
77.6
(14.8)
39.0
Net profit
32.2
32.7
29.3
25.5
Year to March
FY13
FY14
FY15E
FY16E
Yield on advances
Yield on investments
14.1
7.5
13.3
7.2
12.9
7.1
12.5
7.1
Yield on assets
Net NPA ratio
Provision coverage
Dividend payout (%)
Operating ratios
11.1
10.7
10.5
10.3
Net interest margins
3.5
3.7
3.8
3.9
Cost of funds
8.0
7.5
7.1
6.8
Cost of deposits
8.3
7.6
7.6
7.1
Cost of borrowings
8.0
8.1
7.0
6.7
Spread
11
3.1
3.2
3.4
3.5
Cost-income
48.8
45.7
46.2
45.4
Tax rate
32.7
33.8
33.8
33.8
Edelweiss Securities Limited
Banking and Financial Services
Balance sheet
As on 31st March
(INR mn)
RoE decomposition (%)
FY13
FY14
FY15E
FY16E
FY13
FY14
FY15E
FY16E
Equity capital
Reserves & surplus
5,229
68,947
5,256
85,173
5,256
100,473
5,256
119,964
Net interest income/assets
Fees/Assets
3.5
2.1
3.7
2.4
3.8
2.5
3.9
2.5
Net worth
74,176
90,430
105,729
125,220
Investment profits/Assets
0.1
0.1
0.1
0.1
-
-
500
1,000
Net revenues/assets
5.7
6.2
6.4
6.5
541,167
605,023
732,943
932,208
Operating expense/assets
(2.8)
(2.8)
(2.9)
(2.9)
Borrowings
94,596
147,620
180,833
216,590
Provisions/assets
(0.4)
(0.6)
(0.4)
(0.5)
Other liabilities
22,180
28,825
39,137
49,202
Taxes/assets
(0.8)
(0.9)
(1.0)
(1.0)
Total liabilities
732,118
871,897 1,059,141 1,324,220
Total costs/assets
(4.0)
(4.4)
(4.4)
(4.5)
Loans
443,206
551,018
683,263
860,911
ROA
1.7
1.8
2.0
2.0
68,487
67,695
64,380
81,315
Equity/assets
9.5
10.7
10.7
10.2
141,083
153,800
186,727
234,753
17.8
17.1
18.6
19.8
55,459
61,830
72,414
84,066
Fixed assets
5,435
10,165
10,228
10,212
Valuation parameters
Other Assets
18,449
27,390
42,128
52,964
Year to March
FY13
FY14
FY15E
FY16E
Total assets
732,118
Diluted EPS (INR)
Y-o-Y growth (%)
20.3
18.3
26.8
32.0
34.6
29.3
43.5
25.5
Sub bonds/pref cap
Deposits
Cash and equivalents
Gilts
Others
Book value per share (INR)
871,897 1,059,141 1,324,220
Year to March
ROAE (%)
141.9
172.0
201.1
238.2
Credit growth
27.7
25.3
24.0
25.9
Book value per share (INR)
141.9
172.0
201.1
238.2
Deposit growth
27.7
11.8
21.1
27.2
Adjusted book value per share
140.0
169.6
197.4
233.6
EA growth
28.4
17.8
20.7
25.3
Diluted PE (x)
31.3
23.7
18.3
14.6
SLR ratio
22.2
20.4
20.4
20.4
Price/BV (x)
4.5
3.7
3.2
2.7
C-D ratio
83.3
93.4
95.6
94.6
Price/ Adj. BV (x)
4.5
3.7
3.2
2.7
Low-cost deposits
29.3
32.5
33.0
33.3
1.0
1.1
1.2
1.3
Dividend yield (%)
Price to income (x)
0.5
13.9
0.6
10.4
0.7
8.4
0.9
6.8
Gross NPA ratio
Net NPA ratio
0.3
0.3
0.4
0.4
70.1
70.4
66.6
68.7
Incremental slippage
1.3
1.4
1.4
1.4
Net NPA / Equity
1.8
2.0
2.7
2.8
Capital adequacy
15.4
14.8
14.3
13.8
- Tier 1
13.8
12.7
12.0
11.3
Provision coverage
Peer comparison valuation
Market cap
(USD mn)
Name
IndusInd Bank
Axis Bank
Federal Bank
Diluted PE (X)
FY15E
FY16E
5,476
14,917
18.3
12.1
Price/ Adj. BV (X)
FY15E
FY16E
ROAE (%)
FY15E
FY16E
14.6
9.9
3.2
2.1
2.7
1.8
18.6
18.1
19.8
18.9
1,895
11.1
8.9
1.5
1.3
14.2
15.6
HDFC Bank
34,572
20.4
16.5
4.1
3.5
21.6
22.4
ICICI Bank
27,933
15.0
12.9
2.2
1.9
14.7
15.4
ING Vysya
1,905
15.0
11.7
1.6
1.4
10.6
12.4
Karnataka Bank
347
4.9
4.2
0.7
0.6
13.4
14.4
South Indian Bank
561
5.6
4.7
1.0
0.8
17.5
18.3
3,978
12.3
9.9
2.1
1.8
21.0
19.2
Median
-
12.3
9.9
2.1
1.8
17.5
18.3
AVERAGE
-
12.8
10.4
2.1
1.8
16.6
17.4
Yes Bank
Source: Edelweiss research
12
Edelweiss Securities Limited
IndusInd Bank
Additional Data
Directors Data
R. Seshasayee
Ajay Hinduja
Ashok Kini
Vijay Vaid
Romesh Sobti
Chairman
Director
Director
Additional Director
Managing Director & CEO
T. T. Ram Mohan
S. C. Tripathi
Kanchan Chitale
R. S. Sharma
Director
Director
Additional Director
Additional Director
Auditors - M/s B S R & Co
*as per last annual report
Holding - Top10
Perc. Holding
Perc. Holding
GA Global Invsts Ltd
4.81
Bridge India Fund
4.22
Dia Afrin
3.06
Life Insurance Corp Of India
2.33
Goldman Sachs Inv Maur Ltd
2.19
Idl Speciality Chemicals
1.76
Templeton Asset Mgmt
1.66
ICICI Prudential Life Insurance
1.55
HDFC Life Insurance Co Ltd
1.54
GIC Private Limited
1.29
*as per last available data
Bulk Deals
Data
18 Mar 2014
10 Mar 2014
10 Mar 2014
28 Oct 2013
28 Oct 2013
Acquired / Seller
Asok Leyaland Ltd
Hinduja Ventures Ltd
Hinduja Group Ltd
Afrin Dia
Hinduja Ventures Ltd
B/S
Sell
Buy
Sell
Buy
Sell
Qty Traded
3125000
470000
470000
290000
290000
Price
476.82
450.00
450.00
425.00
425.00
*in last one year
Insider Trades
Reporting Data
15 Sep 2014
08 Sep 2014
05 Sep 2014
01 Sep 2014
Acquired / Seller
Suhail Chander
Suhail Chander
Suhail Chander
Suhail Chander Head CCBG
B/S
Sell
Sell
Sell
Sell
Qty Traded
20000.00
70000.00
20000.00
20000.00
*in last one year
13
Edelweiss Securities Limited
RATING & INTERPRETATION
Company
Absolute
Relative
Relative
reco
reco
risk
Allahabad Bank
BUY
SP
M
Bajaj Finserv
BUY
SO
L
Development Credit Bank
Company
Absolute
Relative
Relative
reco
reco
Risk
Axis Bank
BUY
SO
M
Bank of Baroda
BUY
SO
M
BUY
SO
M
Federal Bank
BUY
SO
L
HOLD
SP
L
HDFC Bank
BUY
SO
L
ICICI Bank
BUY
SO
L
IndusInd Bank
BUY
SO
L
IDFC
BUY
SO
L
ING Vysya
BUY
SO
L
Karnataka Bank
BUY
SP
M
Kotak Mahindra Bank
HOLD
SP
M
M
HDFC
LIC Housing Finance
BUY
SO
M
Magma Fincorp
BUY
SO
HOLD
SP
M
Manappuram General Finance
BUY
SP
H
Max India
BUY
SO
L
Multi Commodity Exchange of India
UNDER REVIEW
None
None
Muthoot Finance
BUY
SO
M
Oriental Bank Of Commerce
BUY
SP
L
Power Finance Corp
BUY
SO
M
Punjab National Bank
HOLD
SP
M
Mahindra & Mahindra Financial Services
Reliance Capital
BUY
SP
M
Repco Home Finance
BUY
SO
M
Rural Electrification Corporation
BUY
SO
M
Shriram City Union Finance
BUY
SP
M
Shriram Tansport Finance
BUY
SO
L
South Indian Bank
BUY
SP
M
State Bank of India
BUY
SO
L
Union Bank Of India
BUY
SP
M
Yes Bank
BUY
SO
M
ABSOLUTE RATING
Ratings
Expected absolute returns over 12 months
Buy
More than 15%
Hold
Between 15% and - 5%
Reduce
Less than -5%
RELATIVE RETURNS RATING
Ratings
Criteria
Sector Outperformer (SO)
Stock return > 1.25 x Sector return
Sector Performer (SP)
Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU)
Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings
Criteria
Low (L)
Bottom 1/3rd percentile in the sector
Medium (M)
Middle 1/3rd percentile in the sector
High (H)
Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings
Criteria
Overweight (OW)
Sector return > 1.25 x Nifty return
Equalweight (EW)
Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW)
Sector return < 0.75 x Nifty return
14
Edelweiss Securities Limited
IndusInd Bank
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Vikas Khemani
Head Institutional Equities
vikas.khemani@edelweissfin.com
+91 22 2286 4206
Nischal Maheshwari
Co-Head Institutional Equities & Head Research
nischal.maheshwari@edelweissfin.com
+91 22 4063 5476
Nirav Sheth
Head Sales
nirav.sheth@edelweissfin.com
+91 22 4040 7499
Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services
Allahabad Bank, Axis Bank, Bajaj Finserv, Bank of Baroda, Development Credit Bank, Federal Bank, HDFC, HDFC Bank, ICICI Bank, Infrastructure
Development Finance Co Ltd, IndusInd Bank, Karnataka Bank, Kotak Mahindra Bank, LIC Housing Finance, Max India, Multi Commodity Exchange of India,
Manappuram General Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Oriental Bank Of Commerce, Punjab National
Bank, Power Finance Corp, Reliance Capital, Rural Electrification Corporation, Repco Home Finance, State Bank of India, Shriram City Union Finance,
Shriram Tansport Finance, South Indian Bank, Union Bank Of India, ING Vysya, Yes Bank
Recent Research
Date
Company
10-Oct-14
29-Sep-14
16-Sep-14
BFSI
Title
Price (INR)
Private, PSU banks’ divergent
trend to persist;
Q2FY15 result preview
Federal Bank Moving in the right direction;
Visit Note
BFSI
Recos
126
Buy
SBI trims deposit rate:
Precursor to base rate cut?;
Sector Update
Distribution of Ratings / Market Cap
Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution*
* 1 stocks under review
> 50bn
Market Cap (INR)
144
Buy
Hold
151
44
Reduce
Total
9
205
Between 10bn and 50 bn
< 10bn
56
Rating
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
5
15
Edelweiss Securities Limited
Banking and Financial Services
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