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Target: ₹1,408
CMP: ₹1,199.45
IndusInd Bank’s Q3 FY23 profitability improved, with a 1.86 per cent RoA (up 8 basis points q-o-q) and stable asset quality. Key positives were: Strong disbursements in the VF book; strong retail deposit growth; sturdy balance sheet with 70 per cent coverage and a ₹ 2,190 crore provision buffer (0.8 per cent of loans); and strong liquidity and capitalisation. With credit growth expected to be strong and moderating credit costs, earnings are expected to be robust. We maintain our positive view on the bank with a target price of ₹1,408, valuing it at 1.6x P/ABV on its FY25 book.
GNPA declined a slight 5 bps sequentially to 2.1 per cent, driven by lower slippages and higher write-offs. Slippages were ₹1,460 crore (2.4 per cent of loans), of which ₹1,340 crore stemmed from the retail book. With most of the stress already delinquent/restructured and collections reaching pre-Covid levels, slippages ahead are expected to be modest.
As the economic environment improves, strong growth is expected from the bank’s MFI and vehicle-finance books in the medium term, with overall credit growth expected to come in high teens.
Our January 2024 ₹1,408 target stems from a two-stage DDM model. This implies a 1.6x P/ABV multiple on its FY25 book. Risks: Lumpy slippage in the corporate book; volatility in asset quality from the MFI book.
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