Emkay Global

IndusInd Bank (Buy)

CMP: ₹350.8

Target: ₹630

New MD & CEO reiterated his long-term stance of retailisation of assets/liabilities, learning from its recent past. Institutional deposits ran-down (10-11 per cent ) post YES Bank saga, which were replaced with CDs/borrowings and eventually be replaced with retail deposits.

Key takeaways: a) Near-term asset quality stress is inevitable due to lockdowns, mainly in cards/PL, MFI (micro finance institution), Real estate/LAP (loan against property) and VF business, but moratorium should help limit NPAs. Plans to improve PCR to 60 per cent in Q4 from 53 per cent (thus 210 bps LLP) and eventually to 70 per cent .

b) The bank plans to adopt calibrated growth in the near to medium term as focus moves to retail deposit/granular asset growth. We cut our earnings estimates by about 5/13 per cent on lower loan growth/higher LLP (limited liability partnership) and expect moderate RoA/RoE in FY21-22E at 1.6-1.7 per cent /14-15 per cent .

c) We believe that the bank’s near-term performance will track its ability to manage Covid-19-led disruption on its growth/asset quality. However, we maintain ‘Buy’ with a revised target price of ₹630, mainly due to its lower valuations and healthy capital position.