Indusind Bank Will Increase Its Foreign Institutional Investment

The Reserve Bank of India (RBI) has allowed Indusind Bank to increase its foreign institutional investment (FII) limit to 49 per cent but has stated that the aggregate foreign investment in the bank should to not exceed 74 per cent. As on September 30, 2012, the FII holds 34.26 per cent of the company’s stake. The FII holding has been due to the bank’s good asset quality and decent business growth.

The RBI has further said that the purchase of equity shares by a single FII entity in the bank should not exceed 10 per cent of the total capital and those who wish to invest should be registered with the SEBI. As per the current norms, the RBI needs to be intimated in case of a transfer of 5 per cent or more shares of a private sector bank by the FIIs and hence if there are any such transactions it would be the bank’s duty to inform the RBI.

Indusind Bank yesterday made an announcement on the BSE that it has opened an issue for qualified institutional placement (QIP) on November 26, 2012. Approximately 5.21 crore of equity shares would be offered via the QIP route. As per the company’s press release, details pertaining to allotment and pricing of the issue would be intimated shortly by the bank. At the current market price of Rs 394, the bank would able to raise around Rs 2,000 crore.

We believe that the funds so generated would help the bank to maintain its capital and would also be used for its business growth. As on September 30, 2012, the capital adequacy ratio (CAR) of the bank stood at 11.76 per cent with Tier 1 CAR at 9.93 per cent. With the infusion of new funds the bank’s CAR would move higher to 16 per cent.

Indusind Bank’s scrip has appreciated by around 75.11 per cent, outperforming the BSE Bankex which appreciated by around 46.19 per cent and the frontline indices which have moved higher by 21.92 per cent on an YTD basis. With the RBI allowing more foreign investments, one may see additional FIIs entering the counter, thus taking its share price higher. The stock on Tuesday closed higher by 2.46 per cent at Rs 394 per share, thereby touching a new high.

Particulars (%)	Sept 2012	Sept 2011
Net Profit (Rs / Cr)	250.25	193.09
CASA	27.98	27.7
NIM	3.25	3.35
CAR	11.76	14.32
Provisions (Rs / Cr)	49.07	46.97
Gross NPA	1.03	1.09
Net NPA	0.29	0.31
PCR	72.09	72
Return on Assets	1.56	1.57
Book Value (Rs)	106.76	90.23

The bank posted decent September quarter numbers with good bottomline growth while it faced some headwinds on the asset quality front. The net interest income (NII) of the bank increased by 22 per cent to Rs 509.73 crore while its net profit grew at a handsome rate of 30 per cent to Rs 205.25 crore. The gross NPAs and net NPAs increased by 6 and 2 basis points to 1.03 and 0.29 per cent respectively on a sequential basis. Its net interest margin (NIM) contracted by 10 basis points to 3.25 per cent on a YoY basis but improved marginally by 3 basis points on a sequential basis.

On the valuation front, the bank is currently available at a trailing price to earning multiple of 20.10x and at a price to book value of 3.69 times, which we believe is slightly on the higher side. Due to the two major developments viz. of FII investments and the QIP issue, one may see some upward movement in the bank’s share price in the short run. We at Dalal Street Investment Journal advise readers to enter the counter at the lower level, keeping in mind a long-term horizon to garner better returns.