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  • Earnings update: IndusInd Bank — Reduce — TP Rs.1900

    Publish date: July 11, 2018

    NIM pressure, as expected

    IndusInd Bank saw its earnings grow by 24% year over year due to a pick-up in operating profits. The bank also saw a higher-than-expected loan growth, which has eased off the net interest margin (NIM) pressure for now at least. The other upside is that the IndusInd-Bharat Financial (BHAFIN) merger talks are in its final phase and should be completed in the next few months.

    Key Highlights

    • The company posted strong loan growth due to high demand for vehicle loans, credit cards and corporate loans. Overall, the bank reported a 29% yoy surge in loan growth. The retail segment grew by 28% yoy and the corporate loan segment saw a 36% pickup in the first quarter of FY2019. We expect loan growth at 30% between FY2018-21, especially due to the BHAFIN acquisition.
    • The NIM shrunk by 5 bps due to the increasing cost of deposits. Although the NIM pressure will ease off slightly due to the BHAFIN buy, we are not sure whether the bank can keep recording high loan growth for the next few quarters to mitigate the NIM risk.
    • With NPAs flooding our airwaves, the bank announced a slight drop in retail slippages, which is a departure from the previous few quarters.

    Valuation & outlook

    We maintain ‘reduce’ ratings on the stocks because it is overvalued and there is possible risk to revenues in its existing businesses over the medium-term due to intense competition. You can read our full report to get our detailed analysis.

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