Indusind Bank’s Post June Results: Buy On Dips

In an environment when most of the banks are facing pressure on the asset quality front, Indusind Bank was able to sustain its asset quality and kept it at the lower levels. Its gross NPA further decreased by 11 basis points to 0.97 per cent while its net NPA decreased by 3 basis points to 0.27 per cent on a YoY basis. On a sequential basis the bank’s net NPA stood at the same level, which is considerable. The provision coverage ratio (PCR) of the bank remained almost at the same level at 72.64 per cent which should be considered as a decent level as the RBI comfort zone is 70 per cent. Further, as on June 30, 2012 the capital adequacy ratio (CAR) of the bank stands at 12.86 per cent as against 14.99 per cent in the same period last year. The Tier 1 CAR of the bank stands at 10.62 per cent.

The bank faced serious headwinds on the margin front. The net interest margin (NIM) of the bank decreased by 19 basis points to 3.22 per cent on a YoY basis and it also saw a decline of 7 basis points on a sequential basis. This was one of the key areas where the bank disappointed the investors. This was after the bank’s cost of funds increased by 35 basis points to 7.62 per cent while its yield on assets improved only by 28 basis points to 10.84 per cent.

The business growth of the bank was stupendous in the June quarter of 2012. As on June 30, 2012, the deposits witnessed a growth of 28 per cent to Rs 45,075 core while the advances grew by a whopping 31 per cent to Rs 37,244 crore. The CASA deposit stood at 27.9 per cent - a slight increase on a sequential basis. The loan book of the bank is well diversified with 50 per cent of the loans from the consumer finance segment while the remaining 50 per cent is exposed to the corporate and commercial banking segment. One should note that a majority of the bank’s exposure (around 40 per cent of the total loan book) is towards auto financing.

Wholesale banking saw a robust growth of 44 per cent to Rs 800 crore while profit from the same also increased by 34 per cent to Rs 135 crore. The treasury segment also showed a robust growth in profit, growing by 39 per cent to Rs 33 crore. One of the reasons for the growth in the treasury segment’s profit could be that the RBI slashed the repo rates. This further helped the bond yield to soften, helping the bank to see some mark-to-market gains as the bond prices moved higher.  

In conclusion we believe the bank posted good numbers in most of the parameters while the fall in NIM was a surprise. On the valuation front the stock is available at a price to earnings multiple of 17 times and price to book of around 3.37 times which we believe is slightly on the higher side. We expect the price to take some beating on the bourses and hence one could enter the counter at the lower levels of around Rs 300 per share. We would advise investors to enter the scrip in a staggering manner, keeping in mind a longer term horizon.