28 april 2020 results review 4qfy20 indusind bank...aakash dattani [email protected]...

28 April 2020 Results Review 4QFY20

Indusind Bank

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

The risks remain…

IIB’s 4QFY20 net earnings (-76.8% QoQ) were below estimates (-20%), due to

higher provisions. The rise in GNPAs was limited by higher w/os. Sequential

NIM improvement was a positive surprise. Maintain ADD with a TP of Rs 575

(1xMar-22E ABV of Rs 575).

GNPA (2.45%) growth was optically curtailed to 12.4% QoQ, by higher

write-offs (Rs 8.4bn) even as slippages (Rs 20.6bn) remained elevated at

3.97% (vs. 0.68% SMA II in 3QFY20). Slippages were chunky, with 4 a/cs

(power and paper mfg. co., tea co., med. equip. co. and broker) contributing

to ~60% of gross slippages. The management expects an 80bps COVID-19

GNPA impact. We remain cautious on the bank’s asset quality given that

existing stress (largely chunky) can materialise from its exposure to sectors

perceived as risky (microfin., telecom, NBFCs, gems & jewellery, CRE etc.).

We model slippages of ~3.5% over FY21-22E.

Concerns on funding granularity, but not liquidity: IIB saw a 6.8% QoQ

fall in deposits (SA: -18.1%, TD: -3.5%). The events at YES resulted in this

outflow (led by bulk and govt. deposits), although some of these deposits

(largely wholesale) returned in Apr-20. Despite this, IIB maintained its LCR

above 100% (112.3% terminal). Liquidity is not a concern, but IIB’s reliance

on borrowings (19.8% of assets, +280/450bps QoQ) has increased. Retail

deposits are just ~31% (+300bps QoQ) - deposit granularity remains a

concern. The mgt explicitly highlighted the need to focus on this. We believe

IIB is likely to recalibrate its funding strategy and deposit growth may thus

remain slow, posing an additional challenge to loan growth.

Loan growth: IIB’s loan book was flat QoQ in the face of liability-side

challenges and external headwinds. CCB loans (44.2% of loans) saw broad-

based QoQ de-growth (-4.1%), accentuated by sell-downs. Interestingly,

micro-credit (14% of loans, +16.7% QoQ) a/c for the entire QoQ growth in

CFD loans as most other sub-segments witnessed de-growth. Growth at IIB

will be restricted by COVID-19 related disruptions and liability-side

recalibration. We expect loans to grow at ~9% over FY21-22E.

IIB may face serious near-term challenges- (1) asset quality risks

stemming from its exposure to risky sectors (microfin., telecom, NBFCs,

CRE etc.) and (2) scaling its granular deposit base. Higher provisions on

anticipated stress will dent RoE. Together with heightened systemic risk,

these underpin our measly assigned multiple (1x FY22E ABV).

Financial Summary

(Rs mn) 4Q

FY20*

4Q

FY19 YoY (%)

3Q

FY20*

QoQ

(%) FY19 FY20E* FY21E* FY22E*

Net Int. Inc. 32,312 22,324 44.7% 30,740 5.1% 88,462 120,587 122,336 132,388

PPOP 28,362 20,677 37.2% 27,456 3.3% 80,882 107,727 99,847 105,526

PAT 3,018 3,601 -16.2% 13,002 -76.8% 33,011 44,179 29,411 41,798

EPS (Rs) 4.4 6.0 -27.2% 18.8 -76.8% 54.8 63.7 41.5 58.9

ROAE (%)

13.3 14.7 8.1 10.2

ROAA (%)

1.32 1.51 0.93 1.21

Adj. BVPS (Rs)

400 459 512 575

P/ABV (x)

1.02 0.89 0.80 0.71

P/E (x) 7.4 6.4 9.8 6.9

Source: Bank, HSIE Research. * Post BHAFIN’s merger with IIB, may not be comparable with prior

periods.

ADD

CMP (as on 27 Apr 2020) Rs 407

Target Price Rs 575

NIFTY 9,282

KEY

CHANGES OLD NEW

Rating ADD ADD

Price Target Rs 571 Rs 575

EPS % FY21E FY22E

1.2% 1.5%

KEY STOCK DATA

Bloomberg code IIB IN

No. of Shares (mn) 694

MCap (Rs bn) / ($ mn) 283/3,710

6m avg traded value (Rs mn) 8,888

52 Week high / low Rs 1,695/236

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (68.0) (68.1) (76.0)

Relative (%) (45.1) (49.0) (57.3)

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 14.4 13.0

FIs & Local MFs 14.1 14.1

FPIs 55.2 48.7

Public & Others 15.7 24.2

Pledged Shares - -

Source : BSE

Darpin Shah

[email protected]

+91-22-6171-7328

Aakash Dattani

[email protected]

+91-22-6171-7337

Page | 2

Indusind Bank: Results Review 4QFY20

Commentary on COVID-19 impact and other matters:

o Within the CFD, 96% of VF, 99% of micro-finance and 95% of non-VF

customers repaid due amounts in Mar-20.

o Without explicitly stating the proportion of customers opting for the

moratorium option, IIB said that the option was being offered to CFD

borrowers unless they opted out and to corporate borrowers on an opt-in

basis. Few corporate borrowers opted for the same (incl. Rs 4.6bn of SMA

a/cs). Further, the mgt said that it would support NBFCs only if 2/3rds of the

lenders would do so.

o Based on its stress tests (the mgt factored that normal business activity will

resume in rural and semi-urban areas in the 2nd half of May-20 and in urban

areas in Jun-20), IIB expects a GNPA impact of 80bps and a credit cost impact

of 50bps.

o Both the CCB division (Rs 12.5bn, 5.47% ann.) and CFD (Rs 8.1bn, 2.80% ann.)

saw higher slippages. The CCB division saw higher reductions at Rs 8.84bn incl.

w/o of Rs 8.43bn (vs Rs 5.2bn QoQ). The W/os were towards large infrastructure

NBFC and broking exposure. Within the CFD, microfinacnce (Rs 3.7bn, 1.5% vs.

1.1% QoQ), LAP/HL/PL (Rs 3.35bn, 3.5% vs. 3.2% QoQ) and CV + tractors (Rs

5.2bn, 1.8% vs. 1.6%) saw a sharp QoQ rise in stress.

NIMs expand: IIB’s NIMs expanded 10bps QoQ to 4.25% (a positive surprise).

This was facilitated by (1) a 664bps QoQ increase in the CD ratio to 102.3%, (2)

sharp QoQ growth (+16.7%) in o/s micro-credit and (3) a 44bps QoQ fall in the

CoD (possibly a result of the bulk deposit outflows). We expect NIMs of 4.35%

over FY21-22E.

Provisions jump again: Overall non-tax provisions registered a 56.4/133.9% rise

to Rs 24.4bn.

o Gross credit costs were Rs 17.9bn, of which those related to the CCB segment

were ~81%. IIB provided for the remainder of its exposure to IL&FS (parent co.

and hold co.) in 4Q.

o Consequently IIB’s coverage increased 2030/1081bps YoY/QoQ to 63.3%.

o IIB made of Rs 2.6bn of counter-cyclical buffer provisions/ floating provisions

related to COVID-19. Further, IIB made Rs 230mn of provisions against SMA

borrowers availing moratorium (5% of Rs 4.6bn under the standstill category

over 2 qtrs).

o IIB also provided ~Rs 750mn against potential telecom stress.

o Rs 2.4bn related to the fraud identified in 3QFY20 (already dr. to reserves) was

transferred to the P&L).

o The mgt alluded to reaching a coverage level of ~70%. We expect IIB to maintain

calc. coverage of 68% by FY22E, implying LLPs of ~2.2% over FY21-22E.

Note : CCB refers to

Corporate & Commercial

Banking (wholesale), CFD

to Consumer Finance

Division (retail)

CCB slippages include a/cs

which did not qualify as

NPAs as per IRAC norms

Page | 3


Five quarters at a glance (see next page for comparable quarterly data)

Rs mn 4QFY19 1QFY20 2QFY20* 3QFY20* 4QFY20* YoY

Growth

QoQ

Growth

Income statement

Net interest income 22,324 28,440 29,095 30,740 32,312 44.7% 5.1%

Non-interest income 15,590 16,633 17,267 17,894 17,720 13.7% -1.0%

Treasury income 1,400 2,410 2,590 2,840 3830 173.6% 34.9%

Operating income 37,914 45,072 46,362 48,634 50,032 32.0% 2.9%

Operating expenses 17,237 19,163 20,363 21,178 21,670 25.7% 2.3%

PPOP 20,677 25,910 25,999 27,456 28,362 37.2% 3.3%

Non-tax provisions 15,607 4,306 7,377 10,435 24,403 56.4% 133.9%

NPA Provisions 20,040 3,050 3,630 5,760 17,860 -10.9% 210.1%

PBT 5,070 21,603 18,622 17,022 3,959 -21.9% -76.7%

Tax expenses 1,469 7,278 4,789 4,020 940 -36.0% -76.6%

PAT 3,601 14,325 13,834 13,002 3,018 -16.2% -76.8%

Balance sheet items

Deposits (Rs bn) 1,949 2,006 2,072 2,167 2,020 3.7% -6.8%

CASA Deposits (%) 43.1 43.1 41.4 42.4 40.4 -277 bps -202 bps

Advances (Rs bn) 1,864 1,935 1,971 2,074 2,068 10.9% -0.3%

CD Ratio (%) 95.7 96.5 95.1 95.7 102.3 670 bps 664 bps

CAR (%) 14.16 15.47 15.77 15.43 15.04 88 bps -39 bps

Tier I (%) 13.53 15.04 15.34 15.00 14.57 104 bps -43 bps

Profitability (%)

Yield On Advances 11.25 12.00 12.04 11.97 11.89 64 bps -8 bps

Cost Of Deposits 6.80 6.86 6.70 6.49 6.05 -75 bps -44 bps

NIM 3.59 4.05 4.10 4.15 4.25 66 bps 10 bps

Cost-Income Ratio 45.5 42.5 43.9 43.5 43.3 -215 bps -23 bps

Tax Rate 29.0 33.7 25.7 23.6 23.7 -523 bps 13 bps

Asset quality

Gross NPA (Rs bn) 39.5 42.0 43.7 45.8 51.5 30.4% 12.4%

Net NPA (Rs bn) 22.5 23.8 22.0 21.7 18.9 -16.1% -13.2%

Gross NPAs (%) 2.10 2.15 2.19 2.18 2.45 35 bps 27 bps

Net NPAs (%) 1.21 1.23 1.12 1.05 0.91 -30 bps -14 bps

Delinquency Ratio (%) 8.21 1.53 2.26 3.85 3.97 -423 bps 13 bps

Restructuring O/s (%) 0.09 0.08 0.11 0.06 0.04 -5 bps -2 bps

Coverage Ratio (%) 43.0 43.3 49.6 52.5 63.3 2030 bps 1081 bps

Change In Estimates

Rs mn FY21E FY22E

Old New Change Old New Change

NII 124,946 122,336 -2.1% 133,269 132,388 -0.7%

PPOP 104,101 99,847 -4.1% 105,390 105,526 0.1%

PAT 29,059 29,411 1.2% 41,193 41,798 1.5%

ABV (Rs) 515.0 511.5 -0.7% 571.8 574.7 0.5%

Source: HSIE Research

QoQ NII growth was led

by sharp NIM expansion

Core fee income dipped

2.0/7.7% YoY/QoQ

IB, loan processing, and

general banking fees saw

the sharpest QoQ fall

Consumer banking fees

formed ~52% of non-

interest income

SA deposits fell 18.1%

QoQ, TD fell 3.5% QoQ

QoQ NIM expansion was

facilitated by growth in

high yielding micro-credit

loans and a sharp fall in

the CoD

CCB slippages: 5.47% vs.

5.19% QoQ and 11.36%

YoY

CFD slippages: 2.8% vs.

2.52% YoY and QoQ

SMA I: 53bps (+21/-11bps

YoY/QoQ)

SMA II: 16bps (-18/-51bps)

SMA

Page | 4


Comparable Five Quarters At A Glance (IIB + BHAFIN)

Rs mn 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 YoY

Growth

QoQ

Growth

Net Interest Income 24,723 28,440 29,095 30,740 32,312 30.7% 5.1%

Non Interest Income 19,891 16,633 17,267 17,894 17,720 -10.9% -1.0%

Operating Income 44,615 45,072 46,362 48,634 50,032 12.1% 2.9%

Operating Expenses 19,644 19,163 20,363 21,178 21,670 10.3% 2.3%

Pre Provision Profits 24,971 25,910 25,999 27,456 28,362 13.6% 3.3%

Provisions 15,823 4,306 7,377 10,435 24,403 54.2% 133.9%

PBT 9,148 21,603 18,622 17,022 3,959 -56.7% -76.7%

Provision for Tax 2,466 7,278 4,789 4,020 940 -61.9% -76.6%

PAT 6,682 14,325 13,834 13,002 3,018 -54.8% -76.8%

Loans (Rs bn) 1,941 1,935 1,971 2,074 2,068 6.5% -0.3%

Deposits (Rs bn) 1,949 2,006 2,072 2,167 2,020 3.7% -6.8%

C/D Ratio (%) 99.6 96.5 95.1 95.7 102.3 274.1 663.9

Borrowings (Rs bn) 521 498 446 468 608 16.6% 29.8%

Profitability

Yield on Advances (%, Calc.) 11.27 11.88 12.18 12.03 12.02 75 bps -1 bps

Cost of Funds (%, Calc.) 6.64 6.62 6.76 6.54 6.32 -32 bps -22 bps

NIM calc. (%) 3.97 4.34 4.38 4.53 4.73 76 bps 20 bps

Cost-Income Ratio (%) 44.0 42.5 43.9 43.5 43.3 -72 bps -23 bps

Tax Rate (%) 27.0 33.7 25.7 23.6 23.7 -320 bps 13 bps

Asset quality

Gross NPA (Rs bn) 40.1 42.0 43.7 45.8 51.5 28.5% 12.4%

Net NPA (Rs bn) 22.7 23.8 22.0 21.7 18.9 -16.7% -13.2%

Gross NPAs (%) 2.06 2.15 2.19 2.18 2.45 39 bps 27 bps

Net NPAs (%) 1.17 1.23 1.12 1.05 0.91 -26 bps -14 bps

Coverage Ratio (%) Calc. 43.4 43.3 49.6 52.5 63.3 1991 bps 1081 bps

Source: Bank, HSIE Research

Loan growth slows to just 11% YoY Loan book mix: CFD on the rise



5%

10%

15%

20%

25%

30%

35%

40%

100

600

1,100

1,600

2,100

2,600

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Advances (Rsbn) YoY Growth (RHS)

Rsbn % YoY

59

59

58

60

60

60

59

61

60

61

61

61

46

45

46

44

41

41

42

40

40

40

41

39

40

39

39

39

54

55

54

56

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

CCB CFD

Page | 5


CFD mix: share of microfinance on the rise SA outflows drag CASA ratio QoQ

Source: Bank, HSIE Research Source: Bank, HSIE Research

Fall in CoD facilitates NIM expansion Slight improvement in C-I ratio QoQ



Fee income mix: Share of IB & processing fees dips Fee income as a % of loans: downtrend



0%

20%

40%

60%

80%

100%

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

CV UV 3W 2WCar Equip. Fin CC LAPPL BBG MFI

19

%

18

%

21

%

21

%

24

% 28

%

29

%

30

%

30

%

30

%

28

%

28

%

29

%

28

%

30

%

26

%

16

%

18

%

16

%

14

% 14

% 14

%

14

%

14

%

13

%

13

%

15

%

15

%

14

%

13

%

12

%

14

%

0%

10%

20%

30%

40%

50%

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

SA % CA %

2.5%

2.7%

2.9%

3.1%

3.3%

3.5%

3.7%

3.9%

4.1%

4.3%

4.5%

5%

7%

9%

11%

13%

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Yield on Advances Cost of Deposits NIM (RHS)

47

.0

47

.3

47

.5

45

.4

46

.0

45

.7

46

.0

45

.0

44

.2

43

.4

43

.7

45

.5

42

.5

43

.9

43

.5

43

.3

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

-

5.0

10.0

15.0

20.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Trade & Remit. Processing fees FX IncomeTPP distribution IB Fee General feesPSLC

Rs bn 3.4

%

3.4

%

3.5

%

3.7

%

3.4

%

3.4

%

3.4

%

3.3

%

3.2

%

3.1

%

3.0

% 3.2

%

3.0

%

3.0

%

3.0

%

2.7

%

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Page | 6


Slippages rise, led by the CCB segment Higher w/os contain GNPAs

Source : Bank, HSIE Research


Segment-wise asset quality details

CCB 4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

2Q

FY19

3Q

FY19

4Q

FY19

1Q

FY20

2Q

FY20

3Q

FY20

4Q

FY20

GNPA 0.81% 0.98% 1.12% 1.21% 1.20% 1.23% 1.07% 1.14% 2.72% 3.24% 3.27% 3.20% 3.74%

Slippages (ann.) 2.87% 2.03% 1.55% 0.75% 2.46% 0.92% 0.37% 1.74% 11.36% 0.78% 2.14% 5.19% 5.47%

LLP (ann.) 1.17% 0.63% 0.78% 0.40% 0.72% 0.36% 0.25% 0.62% 6.72% 0.26% 0.45% 1.22% 6.18%

CFD 4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

2Q

FY19

3Q

FY19

4Q

FY19

1Q

FY20

2Q

FY20

3Q

FY20

4Q

FY20

GNPA 1.12% 1.25% 1.06% 1.10% 1.14% 1.05% 1.13% 1.12% 1.18% 1.25% 1.34% 1.36% 1.50%

Slippages (ann.) 1.60% 2.18% 1.72% 2.00% 2.24% 1.77% 2.05% 2.05% 2.52% 2.12% 2.32% 2.52% 2.80%

LLP(ann.) 0.62% 0.89% 0.68% 0.88% 0.99% 0.88% 0.91% 0.90% 0.95% 1.08% 0.99% 1.07% 1.21%

Consumer finance: GNPAs

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

2Q

FY19

3Q

FY19

4Q

FY19

1Q

FY20

2Q

FY20

3Q

FY20

4Q

FY20

CV 0.91% 1.09% 1.02% 0.96% 1.03% 0.95% 1.03% 1.10% 1.24% 1.33% 1.46% 1.65% 1.83%

UV 1.11% 1.44% 1.39% 1.27% 1.29% 1.39% 1.34% 1.33% 1.31% 1.25% 1.20% 1.10% 1.03%

CE 1.19% 1.07% 0.98% 1.06% 1.08% 0.88% 0.73% 0.76% 0.71% 0.84% 0.98% 1.00% 1.05%

3W/SCVs 0.93% 1.34% 1.13% 1.22% 1.27% 1.10% 1.28% 1.32% 1.40% 1.39% 1.74% 1.69% 1.79%

2Ws 3.59% 3.62% 3.62% 3.86% 3.90% 3.73% 3.96% 3.66% 3.82% 3.63% 3.23% 2.93% 3.21%

Cars 0.66% 0.75% 0.67% 0.63% 0.67% 0.70% 0.80% 0.83% 0.80% 0.77% 0.74% 0.71% 0.72%

LAP/PL/HL 1.21% 1.44% 0.53% 0.82% 0.90% 0.61% 0.95% 0.67% 0.69% 3.89% 3.86% 3.19% 3.55%

Cards 1.35% 1.23% 1.48% 1.66% 1.63% 1.78% 1.48% 1.92% 1.87% 2.25% 2.43% 2.58% 1.93%

Microfinance 0.61% 0.94% 1.09% 1.52%

GNPA Movement (CFD +CCB): Slippages rise QoQ

Rs bn 4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

2Q

FY19

3Q

FY19

4Q

FY19

1Q

FY20

2Q

FY20

3Q

FY20

4Q

FY20

Opening 9.71 10.55 12.72 13.46 14.99 17.05 17.41 17.81 19.68 39.47 42.00 43.70 45.78

Additions 6.34 6.08 4.98 4.08 8.6 4.75 4.19 8.06 36.88 7.25 11.02 19.45 20.57

Reductions 5.5 3.91 4.24 2.55 6.54 4.39 3.79 6.19 17.09 4.72 9.32 17.37 14.90

Closing 10.55 12.72 13.46 14.99 17.05 17.41 17.81 19.68 39.47 42.00 43.70 45.78 51.45

Slipp. (%) 2.35 2.12 1.66 1.30 2.52 1.29 1.07 1.92 8.21 1.53 2.26 3.85 3.97


1.1

%

1.1

%

1.1

%

2.3

%

2.1

%1

.7%

1.3

% 2.5

%

1.3

%

1.1

%

1.9

%8

.2%

1.5

%

2.3

%3

.8% 4.0

%

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Gross NPA Net NPA

Gross NPA % (RHS) Net NPA % (RHS)

Rs bn

Page | 7


Higher provisions drag RoAAs


Peer Set Comparison

MCap

(Rs

bn)

CMP

(Rs) Rating

TP

(Rs)

ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

AUBANK 156 515 REDUCE 510 121 131 163 24.4 24.5 20.6 4.13 3.83 3.07 16.7 13.4 14.0 1.70 1.41 1.42

AXSB# 1,204 427 BUY 541 263 282 338 21.4 11.6 8.9 1.54 1.43 1.18 6.9 10.7 12.4 0.64 1.07 1.25

CUBK 90 123 BUY 176 66 72 83 11.8 12.0 11.1 1.85 1.69 1.47 14.6 12.7 12.1 1.61 1.47 1.43

DCBB 25 82 ADD 114 94 101 116 7.1 6.8 6.3 0.87 0.81 0.71 11.0 10.4 10.2 0.96 0.92 0.90

FB 88 45 BUY 71 65 67 77 5.5 5.3 5.2 0.69 0.67 0.58 11.5 10.8 10.2 0.95 0.89 0.84

ICICIBC# 2,242 348 BUY 435 155 168 190 17.4 10.1 8.2 1.52 1.36 1.16 7.1 11.6 12.5 0.86 1.32 1.44

IIB 283 407 ADD 575 459 512 575 6.4 9.8 6.9 0.89 0.80 0.71 14.7 8.1 10.2 1.51 0.93 1.21

KMB# 2,489 1,304 ADD 1,263 237 255 295 31.3 30.8 27.5 4.21 3.92 3.26 13.4 12.2 11.7 1.84 1.70 1.69

KVB 22 28 REDUCE 33 56 53 62 9.5 5.7 4.8 0.51 0.53 0.46 3.7 6.0 6.9 0.33 0.53 0.59

RBK 59 117 REDUCE 141 189 198 218 11.1 10.5 7.2 0.62 0.59 0.54 5.9 5.2 7.1 0.60 0.57 0.76

SBIN# 1,614 181 BUY 316 179 183 227 4.0 3.2 2.5 0.40 0.39 0.30 7.0 8.2 9.6 0.43 0.50 0.60

Source: Banks, HSIE Research, # Adjusted for subsidiaries value

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

(5.0)

(3.0)

(1.0)

1.0

3.0

5.0

7.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

NII Other income Opex Provision Tax RoAA (RHS)

Page | 8


Financials Income Statement

(Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Interest earned 96,920 118,717 144,057 172,807 222,612 287,828 289,145 315,219

Interest expended 62,717 73,552 83,431 97,833 134,150 167,241 166,808 182,832

Net interest income 34,203 45,166 60,626 74,974 88,462 120,587 122,336 132,388

Other income 25,480 32,969 41,715 47,501 56,467 69,513 65,035 69,217

Fee income (CEB) 16,926 22,315 28,953 34,119 40,730 46,577 49,008 53,654

Treasury income 1,177 1,453 2,769 3,638 1,151 11,670 4,250 3,250

Total income 59,683 78,135 102,341 122,475 144,929 190,101 187,371 201,605

Operating expenses 28,701 36,721 47,831 55,914 64,047 82,373 87,524 96,079

Employee expenses 9,805 12,361 15,210 17,807 18,535 22,085 23,975 27,536

PPOP 30,982 41,414 54,510 66,561 80,882 107,727 99,847 105,526

Provisions and contingencies 3,891 6,722 10,913 11,754 31,077 46,521 60,528 49,647

Provisions for std. and non-performing advances 3,389 5,015 7,048 9,009 27,190 30,290 51,257 44,653

Profit before tax 27,092 34,693 43,597 54,807 49,806 61,206 39,319 55,879

Tax expense 9,155 11,828 14,918 18,747 16,795 17,027 9,908 14,082

Profit After Tax 17,937 22,864 28,679 36,060 33,011 44,179 29,411 41,798


Statement of assets and liabilities

(Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Source of funds

Share capital 5,295 5,950 5,981 6,002 6,027 6,935 7,093 7,093

Reserves and surplus 101,151 171,010 200,480 232,414 260,833 340,130 388,194 427,902

Shareholders’ funds 106,445 176,960 206,461 238,416 266,860 347,065 395,288 434,996

Savings deposits 129,436 172,462 270,372 458,883 544,857 531,300 584,430 654,562

Current deposits 123,560 154,780 196,088 208,410 295,845 284,400 298,620 313,551

Term deposits 488,348 602,761 799,262 849,099 1,107,978 1,204,698 1,355,410 1,633,825

Total deposits 741,344 930,003 1,265,722 1,516,392 1,948,679 2,020,398 2,238,460 2,601,937

Borrowings 206,181 249,959 224,537 382,891 473,211 607,536 509,324 492,421

Other liabilities 63,904 72,048 89,764 78,563 89,444 95,576 105,134 115,648

Total equity and liabilities 1,117,874 1,428,970 1,786,484 2,216,262 2,778,194 3,070,575 3,248,206 3,645,002

Application of funds

Cash and bank balances 107,791 101,119 186,283 132,159 147,834 160,037 152,342 176,127

Investments 228,783 340,543 367,021 500,767 592,662 599,799 635,884 705,072

Government securities 179,061 281,080 314,523 403,660 486,448 480,928 503,654 559,417

Advances 687,882 884,193 1,130,805 1,449,537 1,863,935 2,067,832 2,193,691 2,471,840

Fixed assets 11,576 12,553 13,352 13,388 17,100 18,201 19,111 20,067

Other assets 81,841 90,561 89,023 120,412 156,663 224,707 247,177 271,895

Total assets 1,117,874 1,428,970 1,786,484 2,216,262 2,778,194 3,070,575 3,248,206 3,645,002


Page | 9


Key Ratios

FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Valuation ratios

EPS (Rs) 33.9 38.4 47.9 60.1 54.8 63.7 41.5 58.9

Earnings growth (%) 27.4 27.5 25.4 25.7 (8.5) 33.8 (33.4) 42.1

Core BVPS (Rs) 193.4 290.8 338.7 390.9 437.2 485.9 552.5 608.5

Core ABVPS (Rs) 189.4 285.4 331.3 378.5 399.9 458.7 511.5 574.7

DPS (Rs) 4.0 4.5 6.0 7.5 7.5 0 2.1 3.9

RoAA (%) 1.80 1.80 1.78 1.80 1.32 1.51 0.93 1.21

RoAE(%) 19.0 16.6 15.3 16.5 13.3 14.7 8.1 10.2

P/E (x) 12.0 10.6 8.5 6.8 7.4 6.4 9.8 6.9

P/ABV (x) 2.15 1.43 1.23 1.08 1.02 0.89 0.80 0.71

P/PPOP (x) 7.0 5.9 4.5 3.7 3.0 2.6 2.9 2.7

Dividend yield (%) 1.0 1.1 1.5 1.8 1.8 - 0.5 0.7

Profitability (%)

Yield on advances 12.5 11.8 11.4 10.6 11.0 12.2 11.4 11.4

Yield on investments 7.1 7.3 7.0 7.1 6.7 7.2 6.9 6.9

Cost of funds 7.4 6.9 6.2 5.8 6.2 6.6 6.2 6.3

Cost of deposits 7.7 6.8 6.3 5.8 6.1 6.0 6.1 6.1

Core spread 4.8 4.9 5.1 4.8 4.9 6.3 5.3 5.2

NIM 3.9 4.0 4.2 4.2 4.0 4.6 4.4 4.4

Operating efficiency

Cost/average assets 2.9 2.9 3.0 2.8 2.6 2.8 2.8 2.8

Cost/income 49.1 47.9 48.0 47.1 44.5 46.2 47.8 48.4

Balance sheet structure (%)

Loan growth 24.8 28.5 27.9 28.2 28.6 10.9 6.1 12.7

Deposit growth 22.5 25.4 36.1 19.8 28.5 3.7 10.8 16.2

CD ratio 92.8 95.1 89.3 95.6 95.7 102.3 98.0 95.0

Equity/ assets 9.5 12.4 11.6 10.8 9.6 11.3 12.2 11.9

Equity/ advances 15.5 20.0 18.3 16.4 14.3 16.8 18.0 17.6

CASA 34.1 35.2 36.9 44.0 43.1 40.4 39.4 37.2

Capital adequacy (CAR) 12.1 15.5 15.3 15.0 14.2 15.0 16.7 16.6

w/w Tier 1 11.2 14.9 14.7 14.6 13.7 14.6 16.2 16.2

Asset quality

Gross NPLs (Rs mn) 5,629 7,768 10,549 17,049 39,474 51,454 85,230 74,244

Net NPLs (Rs mn) 2,105 3,218 4,389 7,457 22,483 18,866 29,086 23,977

Gross NPL (%) 0.81 0.88 0.93 1.18 2.10 2.45 3.89 3.00

Net NPL (%) 0.31 0.36 0.39 0.51 1.21 0.91 1.33 0.97

Slippage ratio (%) 1.43% 1.08% 1.42% 2.58% 3.25% 2.97% 4.00% 3.00%

Calc. PCR (%) 62.6 58.6 58.4 56.3 43.0 63.3 65.9 67.7

Provisions/ average loans (%) 0.5 0.6 0.7 0.7 1.6 1.5 2.4 1.9

RoAA Tree

Net interest income 3.44% 3.55% 3.77% 3.75% 3.54% 4.12% 3.87% 3.84%

Non-interest income 2.56% 2.59% 2.59% 2.37% 2.26% 2.38% 2.06% 2.01%

Treasury income 0.12% 0.11% 0.17% 0.18% 0.05% 0.40% 0.13% 0.09%

Operating cost 2.89% 2.88% 2.98% 2.79% 2.56% 2.82% 2.77% 2.79%

Non-tax provisions 0.39% 0.53% 0.68% 0.59% 1.24% 1.59% 1.92% 1.44%

Provisions for std. & non-performing assets 0.34% 0.39% 0.44% 0.45% 1.09% 1.04% 1.62% 1.30%

Tax expense 0.92% 0.93% 0.93% 0.94% 0.67% 0.58% 0.31% 0.41%

RoAA 1.80% 1.80% 1.78% 1.80% 1.32% 1.51% 0.93% 1.21%

Leverage (x) 10.5 9.2 8.6 9.2 10.0 9.7 8.7 8.4

RoAE 19.01% 16.60% 15.27% 16.50% 13.25% 14.71% 8.07% 10.15%


Page | 10


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

Date CMP Reco Target

9-Apr-19 1,752 BUY 2,009

23-May-19 1,519 BUY 1,964

9-Jul-19 1,476 BUY 1,964

13-Jul-19 1,510 BUY 2,011

22-Sep-19 1,420 BUY 2,076

9-Oct-19 1,310 BUY 2,076

11-Oct-19 1,229 BUY 1,904

16-Dec-19 1,487 BUY 1,904

9-Jan-20 1,459 BUY 1,984

14-Jan-20 1,481 BUY 1,990

2-Mar-20 1,104 ADD 1,491

15-Apr-20 424 ADD 571

20-Apr-20 457 ADD 557

28-Apr-20 407 ADD 575

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Ap

r-1

9

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Ma

r-2

0

Ap

r-2

0

IndusInd TP

Page | 11


Disclosure:

We, Darpin Shah, MBA & Aakash Dattani, ACA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this

research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of

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the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material

conflict of interest.

Any holding in stock –No

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28 april 2020 results review 4qfy20 indusind bank...aakash dattani [email protected]...

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