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IndusInd’s asset quality remains stable as GNPA declined to 2.77% from 2.88% in QoQ, due to increased upgrades and recoveries. However, the restructured portfolio increased to 3.6% versus 2.7% QoQ which includes 50% vehicle, 15% non-vehicle and the rest of the company book. The bank declared a collection efficiency of 98% for the month of September compared to 96% for the month of June.

The deposit grew by 21% year-on-year; advance growth improved to 10% year-on-year from 6% year-on-year (Q1FY22). Management has guided a 16-18% CAGR credit growth over the next 2 years which is the controllable key as well as the expected CV cycle rise at S2FY22. NII increased 12% year-on-year (up 3% in QoQ) while NIMs remained stable in QoQ.

Non-interest income increased 18% year-on-year (up 3% quarter-on-quarter). The PAT grew 73% year-on-year due to lower provisions (down 13% year-on-year). The Bank maintains an overall provision of Rs 20.5 billion as standard conditional provisions and 3.6% of loan-related provisions. “We switched to the FY24E estimates and maintained the ‘Buy’ rating with a new TP of Rs 1,360 (Rs 1,140) based on a P / BV of 1.6x FY24E,” said IDBI Capital Equity Research.

Highlights and rationale for the investment

Credit growth improved sequentially: Credit growth improved to 10% year-on-year (from 6% in Q1 FY22) due to improved corporate portfolio growth (7% year-on-year) with the recovery new loans. The retail portfolio now represents 55% of total loans with the addition of the Business Banking and MFI portfolio. Deposits grew 21% yoy (26% yoy Q1FY22) driven by 17% yoy growth in term deposits and 26% yoy in CASA deposits.

Stable asset quality; Book restructured at 3.6%: Stable quality of bank assets with GNPA at 2.77% vs. 2.88% QoQ; 0.8% NNPA vs 0.8% QoQ with 72% stable PCR. The restructured banking portfolio stands at 3.6% of the portfolio (vs. 2.7% Q1FY22). The bank maintains conditional provisions of Rs 31.8 billion which have cushioned the impact on the income statement of any negative impact from the telecommunications sector. NIMs remain stable: NIMs remain stable at 4.07% although the cost of funds has declined.

Outlook: The continuation of the business strategy under the leadership of the new CEO has made it possible to better manage asset quality issues. In addition, greater concern about deposit growth, which is the key ingredient in the banking sector, has largely abated.

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