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ADD on IndusInd Bank - Equity raise an additional positive - HDFC Securities

Posted On: 2020-08-01 21:59:46

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities.

IIB's 1Q was a mixed bag-while PAT was dented by high provisions, and SA trends disappointed, the decline in the moratorium portfolio was a positive. Commentary indicates a continuing focus on reduction in concentration risks on both sides of the balance sheets. Further, proposed equity raise will strengthen the balance sheet. These positives drive our ADD rating (target price of Rs 584). Our low assigned multiple (1.0xFY22E) is on account of near-term earnings weakness.

1QFY21 highlights: NII grew 16.4/.4% YoY/QoQ, ~10% ahead of estimates due to higher-than-expected NIMs. Other income dipped 8.7/14.3%, buoyed by significant treasury profits, as fee income fell 50.9% QoQ.

Asset quality and moratorium trends: Despite elevated slippages (3% ann., led by 5.8% slippages in the CCB segment, wherein 3 a/cs worth ~Rs 11bn, accounted for ~89% of slippages), GNPAs were flat QoQ at 2.53%, due to high write-offs (Rs 8.4bn). The moratorium portfolio declined to 14% in June from 50% at its peak. 9% of CCB and 19% of CFD loans were under moratorium. Despite the significant reduction in the moratorium portfolio, we continue to model elevated slippages at ~3.8% over FY21E.

Non-tax provisions were 7.4% lower QoQ at Rs 22.6bn but remained elevated (5.3xYoY). COVID-19 provisions were Rs 9.2bn, taking the total to ~Rs 12bn (61bps of loans). IIB's PCR rose 325bps QoQ to 66.6%. We model elevated LLPs of 2.5% over FY21-22E.

Deposit trends: After a steep fall in 4QFY20, IIB's deposits grew 4.6% QoQ, led by 10.6/12.3% growth in CA and an 11.2/5.3% growth in TDs. Disappointingly, SA dipped 8.9/1.1%. Commentary indicates that the bank will continue to play the rate differential game to attract customers by delaying deposit rate cuts. Granular deposit traction remains an area of concern for the bank and performance on this front will be watched.

Equity raise: We have factored in the proposed Rs 32.8bn equity raise at Rs 524 a share in our estimates.

Shares of INDUSIND BANK LTD. was last trading in BSE at Rs.523.6 as compared to the previous close of Rs. 519.85. The total number of shares traded during the day was 488198 in over 10011 trades.

The stock hit an intraday high of Rs. 528.4 and intraday low of 515.75. The net turnover during the day was Rs. 254997711.

Source: Equity Bulls

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