IndusInd Bank (IIB) posted much better-than-anticipated Q4FY21 PAT of Rs 9.3billion with visible indicators of improvement across important company metrics. Loan momentum improved—driven by robust retail disbursements. Most importantly, deposits rose additional 6.8% QoQ—a commendable feat. Asset top quality is along anticipated lines, and we reckon provision buffers are sufficient to deal with present uncertainty. IIB has been steadily delivering on core efficiency. Stabilisation of deposits and its stance of developing on its current provision buffer render outlook steady. Factoring these in, we are raising the target to 1.8x P/B (earlier 1.5x), which yields a TP of Rs 1,150 (up from Rs 880). Consequently, we are upgrading IIB to ‘buy’ from ‘hold’.
IIB reported a steady set of numbers on the asset top quality front. Slippages looked optically higher at Rs 39billion, but ~50% of these have been technical in nature and are currently seeing recovery trends. Collection efficiency in MFI and the automobile loan portfolio is obtaining much better. While a conclusive asset top quality prognosis is nonetheless a couple of quarters away provided the onset of a new Covid cycle, the proactive provisions do make balance sheet more resilient, and we do not not anticipate main deviations in ensuing quarters. While we view the credit expense as comparatively elevated, we think the difficulty is more bounded in nature now than it was couple of quarters back.
Q4FY21 saw company momentum developing up with loan development at 2.4% QoQ supported by robust retail (concentrate segment) development. The essential highlight is a sustained liability create-up with deposit development at 6.8% QoQ, regardless of lowering of interest rate—a commendable feat. Improved development with levers for a much better NIM (price reduce on deposits and shift towards retail assets) will enable the bank in developing up core profitability. We have never ever been in the ‘deposit panic’ club and continue to think that asset fortunes will be the figuring out aspect for the company and its stock efficiency, wherein provisioning intent and stock create raise comfort. In IIB, issues about asset top quality have dominated gains in its core company. We are enthused by the bank’s efficiency and think IIB obtaining by means of the present crisis with out main earnings erosion has been a much better-than-anticipated outcome. To reflect this rising self-assurance, we are upgrading the stock to ‘BUY/SN’.