Stable performance
Strong business growth aided a 10% YoY rise in Q3 PPOP despite higher opex; PAT increased 17% to Rs 23bn
Reported NIM stayed stable QoQ at 4.3% as increased yield on advances offset rise in cost of deposits
TP revised to Rs 1,952 (vs. Rs 1,755) as we tweak estimates and roll valuations over; retain BUY
Loans up 20% YoY: IIB continued its strong credit growth trajectory, with advances rising 20% YoY (+4% QoQ) in Q3FY24, driven by the CFD book (+24% YoY/+5% QoQ), wherein both vehicle and non-vehicle finance along with MFI beat expectations. CCB growth was muted at 15% YoY (2% QoQ) despite a healthy performance from small corporates which grew 43% YoY (5% QoQ). Deposit growth was subdued at 13% YoY (3% QoQ), wherein low-cost retail deposits as per LCR grew 20% YoY to 45% (vs. 43.7% in Q2) while the CASA ratio fell 85bps QoQ to 38.5%.
NIM stable; PAT robust despite high C/I ratio: Continued recovery in high-yield advances (+15bps QoQ) supported a stable reported NIM of 4.3% despite a 9bps QoQ rise in deposit cost. IIB continues to guide for NIM of 4.2-4.3% in FY24. NII growth was healthy at 18% yoY(4% QoQ) as was non-interest income growth at 15% YoY (5% QoQ). Opex stayed elevated due to the bank’s continued investment in human capital, digital launches and marketing initiatives that raised the C/I ratio by 56bps QoQ to 47.4%, with guidance at 45-46% for FY25. Led by a strong topline, PPOP grew 10% YoY (+3% QoQ).
Asset quality stable: Slippages were high at Rs 17.6bn vs. Rs 14.6bn in the previous quarter, wherein corporate slippages were at Rs 3.1bn (vs. Rs 2.1bn) and CFD at Rs 14.5bn (vs. Rs 12.5bn). The latter was mainly from vehicle finance where the bank expects improvement in Q4. Credit cost (calc.) stood at 121bps vs. 126bps in Q2, which is within the guided range of 110-130bps over FY23-FY26. GNPA/NNPA were stable at 1.9%/0.57% with PCR of 70.6%. A continued decline in the restructured book (to 48bps of advances vs. 52bps in Q2) and SMA book (19bps vs. 26bps) and total provisions of 2.2% (114% of GNPA) provide confidence on asset health.
Maintain BUY: Strong growth momentum in retail, recovery in MFI and a favourable asset-liability mix led to stable margins despite higher costs. We expect IIB to deliver healthy return ratios (ROA/ROE to 2%/16.8% in FY26 vs. 1.7%/14.4% in FY23). We retain BUY and revise our TP from Rs 1,755 to Rs 1,952 as we tweak estimates and roll valuations forward to FY26E with an unchanged target P/ABV multiple of 1.9x (Gordon Growth Model).
Click here to download Indus IndBank Q3FY24 Result Review by BOB Caps
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