This Bank Stock Is A ‘Buy' By Emkay Global For Potential Gains Upto 18%

Emkay Global Financial Services has issued a buy call on IndusInd Bank with a target price of Rs 1375, with an upside potential of 22.8%. IndusInd Bank Ltd. is trading at Rs 1120. The expert predicts that it will take one year for the price of IndusInd Bank Ltd. to reach the specified target.

IndusInd Bank: Business Update - Q2FY22

According to the brokerage, deposit growth was significant at 21% yoy/3 percent qoq, with CASA at a high and healthy 42 percent. Retail deposits and deposits from small businesses increased by 48 percent year over year and 6 percent quarter over quarter, accounting for 41 percent of total loans (33 percent in Q2FY21). We believe that better credit growth and thus LDR at 80% should partly improve margins qoq.

The IIB did not release any new asset quality upgrades. Management claimed increased collection efficiency in VF in a recent interview; nevertheless, MHCV, which includes the Bus segment, remained weak.

Business growth improving; outlook on growth/asset quality key monitorables

The brokerage expects that, given lesser stress in MFI and the absence of any lumpy corporate stress, NPA development will be moderate qoq. However, IIB intends to make accelerated provisions on Vodafone in Q2, primarily to cover FB exposure (Rs9.5 billion), and may reverse the same at a later date if visibility improves. This should keep provisions high and profitability low in the second quarter.

IndusInd Bank: Outlook and Valuation

"We appreciate management's conservative stance to make accelerated provisions on Vodafone despite a recent positive move from the government. The provisions can be reversed as the group's growth visibility improves. Currently, we have a Buy rating on the stock with a Target Price of Rs 1,375, given a remarkable improvement in its liability profile after a scare earlier, re-accelerating credit growth, expected improvement in return ratios (RoE ~15-17% over FY23-24E) and reasonable valuations (1.7x Sep'23E ABV)," the brokerage has said.

Results

IIB reported stronger-than-expected credit growth of 10% year-over-year and 5% quarter-over-quarter (total loans at Rs2.2 trillion), indicating underlying strong credit re-acceleration in the retail book. Notably, IIB has been growing its corporate book since Q1, and we expect the bank's corporate book will continue to increase in Q2.

The company reported a Consolidated Total Income of Rs 9362.76 Crore for the quarter ended June 30, 2021, up 1.77 percent from the previous quarter's Total Income of Rs 9199.71 Crore and up 7.84 percent from the same quarter last year's Total Income of Rs 8682.17 Crore. In the most recent quarter, the bank posted a net profit after tax of Rs 1016.05 crore.

Disclaimer

The investment ideas are picked from the brokerage report of Emkay Global financial Service. Investors should note that investing in stocks is risky and neither the author, nor Greynium nor the brokerage would be responsible for losses based on a decision from the above article.