IndusInd Bank: One-off provision hits profit, asset quality stable
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IndusInd Bank Ltd’s financial results for the March quarter were in line with expectations on most counts, barring profit.
The private sector lender’s net profit rose 21.2% year-on-year to Rs751.61 crore, aided by higher net interest income and other income; however, it was lower than Bloomberg analysts’ estimates of Rs791 crore.
The miss was on the back of a one-time provision of Rs122 crore which the lender made against a large corporate account, following an advice issued by the Reserve Bank of India to all banks on Tuesday.
This one-off item also had a bearing on IndusInd Bank’s overall provisions and contingencies, which doubled in the fourth quarter to Rs430 crore as compared to a year ago.
In a post-earnings press conference, the management said that this exposure relates to a bridge loan for a merger and acquisition transaction in the cement industry and there is a high probability of this amount being reversed in a month as the deal concludes. If one excludes such a one-off, then profitability would have stood in line with operating profit growth, said some analysts.
Net interest income saw a robust growth of 31% year-on-year, helped by strong advances. Net interest margin stood at 4% and the asset quality was stable. Gross non-performing assets (NPAs) as a percentage of gross advances fell one basis point sequentially and net NPA was unchanged at 0.39%.
IndusInd Bank’s corporate loan book grew faster than the retail one in the March quarter and within the retail loan book, the growth of commercial vehicle (CV) loans, a high-interest yielding segment, remained flat.
According to the management, fiscal year 2017 has been a testing period for the CV industry impacted by demonetization and new emission norms and as a result, the lender may have lost 1-2% market share in the CV loan segment. This is a bit of a concern, said some analysts, adding that with the latest emission norms, the subdued performance of this segment may last for another quarter or so.
As a part of its new growth cycle (2017-20), IndusInd Bank aims to double the number of branches, clients and profit in this span of three years.
Meanwhile, the management added that the bank is also mulling options to increase focus on the microfinance lending business. Media reports in March said that IndusInd Bank and microfinance firm Bharat Financial Inclusion Ltd were likely to announce a merger, but no official pronouncement has been made yet. Post the bank’s earnings announcement, Bharat Financial’s shares rose over 2%.
On the valuation front, IndusInd Bank is trading at a one-year forward price-to-book multiple of 3.68 times, in line with peers. Its shares fell by 1% after the earnings were announced, but recouped some of the losses later.