IndusInd Bank Ltd Initiating Coverage Report By Ventura

In our opinion IndusInd Bank’s (IIB) performance in the past has been exemplary and stands out notably given the fact that it has performed well in up and down economic cycles. We believe that as India’s growth story takes off, IIB should continue to maintain its stratospheric growth rate over the forecast period FY17-20.

IIB’s planning cycle 4.0 lays out a road map of doing more of the same:

– carrying on with its strategy of gaining market share while retaining profitability

– doubling profits while doubling the loan book and the customer base

– digitization to the fore as it seeks to differentiate, diversify and build domain leadership.

We initiate coverage on IndusInd Bank with a BUY with a price objective of Rs. 2007 (3.9x FY20 P/Adj BV) representing a potential upside of 41.4% over the next 30 months. Currently the stock is trading at 2.8 FY20 P/Adj BV).

Over the forecast period FY16-19 we expect:

– Advances to grow at a CAGR of 22.6% to Rs.2,08,497 cr by FY20 while NII is expected to grow at a CAGR of 19.8% to Rs.10,434 cr over the same period.

– Deposits to grow at a CAGR of 24.2% to Rs.2,42,439 cr by FY20 while it aspires to grow CASA ratio to 40.0% on the back of CASA deposits growing at a CAGR of 27.6% to Rs.99,975 cr.

– Fee Income to outstrip balance sheet growth on the back of robust expectation of 22.8% CAGR to Rs.7,719 cr by FY20.

– Where already 70% of AUM is linked to CLR we expect NIMs to fall slightly by 20 bps to 3.9% by FY20.

– Cost to Income to improve by 323 bps to 43.5% by FY20.

-IIB to maintain its best in class asset quality

– Return ratios to improve further as RoA is expected to expand by 8 bps to 1.9% while RoE to broaden by 338 bps to 18.3% by FY20.