JM Financial Services
IndusInd Bank (Buy)
CMP: ₹1,489.95
Target: ₹1,600
At its Analyst Day, IndusInd Bank (IndusInd) showcased its microfinance capabilities (through Bharat Finance) as well as provided medium-term targets for its consumer banking businesses. Growth in micro-finance should accelerate after cautious stance (in pockets) for last couple of quarters. IndusInd’s RDSP initiative (branded as Bharat Money) has now scaled up to 14,000 kirana stores (target of 1,50,000 stores) and should act as a key distribution as well as customer acquisition channel over the medium term.
In consumer banking, IndusInd intends to more than double the consumer banking client base (ex-Bharat Finance) over the next three years. This, according to management, should see greater granularisation of liabilities. Similarly, the bank also intends to scale up the non-vehicle assets in the consumer banking space to 2x of its current base by FY23E. Its recent corporate stress notwithstanding (management expects credit costs of 80bps for FY20E — we build 116 bps/93 bps over FY20E/21E, respectively, (details in Exhibit 4), IndusInd’s comfortable capital position (13.9 per cent CET1 including 1HFY20 profits) and healthy PPOP (pre-provision operating profit) profile (3.5 per cent+ for FY20E/21E) will still see the bank delivering RoAs of 2 per cent in our view.
Clarity on leadership succession (approval awaited from RBI) and reduction in watchlist should act as key triggers.