What surprised us IndusInd Bank reported 1QFY11 net profit of Rs1,186mn (+21% qoq, +37% yoy), 5% ahead of our estimate. This was driven by: 1) 77% growth in NII to Rs2.96bn (10% ahead of our estimate) on margin expansion (NIM at 3.32%, +13bp qoq), helped by improvement in both corporate, retail yields and higher volumes (+5% qoq, +31% yoy, driven by growth in the commercial vehicle segment), and 2) non-interest income (excluding capital gains) came in 15% ahead of our estimate, up 64% yoy due to higher fees from trade related as well as third-party product distribution.
However, costs came in 13% above our estimate (+36% yoy, +10% qoq) as the company added c. 450 employees and 14 new branches during the quarter. INBK also booked higher loan loss provisions (49% above our estimates, +42% yoy), increasing coverage ratio to 70%. Net NPLs were at 0.4%, down 19% qoq; gross NPLs grew to Rs2.75bn (+14% yoy, +8% qoq) and now stand at 1.3% of advances.
What to do with the stock?
We raise our EPS estimates for FY11-13 by 3%/2%/1% to factor in higher NII, fees and higher expenses on aggressive branch expansion. We raise our Camelot-based 12m target price to Rs225 (from Rs210) to reflect higher earnings estimates and rolling forward BVPS by one quarter. We remain structurally positive on IndusInd Bank and reiterate our Buy rating. Key risks: High dependence on wholesale deposits, frequent capital raisings to achieve growth Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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