Indus Ind Bank Q3 FY21 earnings missed expectation on conservative provisioning and lower-than-estimated fee and treasury income.
Analysts at Yes Securities have upgraded the rating of IndusInd Bank from Add to Buy based on increased confidence around the deposits franchise and credit cost trajectory. The brokerage has raised the 12-month target price to ₹1,070, 16% up from the last traded price of ₹924. The share of IndusInd Bank has soared 44% in the last three months.
Indus Ind Bank Q3 FY21 earnings missed expectation on conservative provisioning and lower-than-estimated fee and treasury income. Loan growth of 3% qoq driven by revival in consumer finance segment (barring CV and LAP, most products recorded growth uptick) was in-line with experts' expectations, while strong and granular deposit growth continue to surprise (5% qoq - CASA sustained at 40%). Despite funding cost benefits, the NIM was stable on account of interest reversals on proforma slippages.
Yes Securities say, overall asset quality performance was resilient with proforma slippages at Rs25bn (1.2% of adv.) and invoked restructuring at ₹12.5bn (60bps). Collection efficiency in the perceived vulnerable portfolios of Microfinance, Vehicle Finance and Gems & Jewellery has demonstrated encouraging recovery in recent months. Many of the weak accounts in Microfinance and Vehicle Finance portfolios slipped in Q3 (formed 40% of proforma slippages) and some more could slip in the current quarter. In other retail products, the overdues buckets have been coming down. The bank is carrying significant provisions on the recognized stress – 85% on reported GNPLs, 62% on proforma slippages and 32% on restructured portfolio, and in addition has provisions of 25-30 bps. In all likelihood, Q4 should be the last quarter of heady provisions.
"We raise ABV estimates by 2-3% assuming better-than-earlier growth and credit cost outcomes. We believe that RoA delivery in FY22/23 could positively surprise on the current consensus estimates, and this could come from a strong recovery in vehicle finance (29% of adv.) and Microfinance (11%) portfolios," says Rajiv Mehta, Lead Analyst - Institutional Equities, Yes Securities.