In the September quarter (Q2FY23), private sector lender, IndusInd Bank, beat analyst estimates to report a 57 percent YoY rise in its net profit to ₹1,805.22 crore driven by a rise in loan disbursement and net interest income (NII).
On a sequential basis, the lender's net profit was up 11 percent from ₹1,631.02 crore in the June quarter.
Meanwhile, the bank's NII jumped 18 percent YoY and 4 percent sequentially to ₹4,302 crore and its net interest margin (NIM) came in at 4.24 percent, up 17 bps YoY and 3 bps QoQ. The bank’s total provisions in Q2FY23 fell 33 percent YoY to ₹1,141 crore.
“Overall, we work in a three-year time frame, and we have always said our (credit) growth will be at 16-18 percent CAGR. This year, we should grow at 18-20 percent CAGR (compounded annual growth rate),” IndusInd Bank’s MD and CEO Sumant Kathpalia said in a post-earnings call.
In terms of its strategy to garner funds, IndusInd Bank will continue to offer higher rates than the market, Kathpalia added.
As on September 30, IndusInd Bank’s total loans were at ₹2.6 lakh crore, up 18 percent YoY and 5 percent QoQ.
Stock price trend
Despite a strong September quarter performance, the lender's stock fell as much as 5.5 percent to its day's low of ₹1,150 on Thursday, a day after the earnings.
The stock has underperformed the Nifty Bank index in the last 1 year, down 1 percent versus a 2 percent rise in the index.
The scrip has lost a little over 1 percent in October so far, snapping losses after 3 consecutive months (July, August, September) of gains. Between July and September, the stock has risen 49 percent. In June, however, the stock fell nearly 15 percent. Overall in 2022 YTD, the stock jumped 31 percent
Only 2 stocks, Bank of Baroda (67 percent) and Federal Bank (56 percent) have outperformed IndusInd in this period (2022).
Brokerage views
Brokerages have retained their buy calls on the stock post its September quarter earnings. Let's see what they make of the earnings.
Motilal Oswal
As per the brokerage IndusInd Bank's operating performance remains on track led by healthy NII growth and controlled provisions. Asset quality ratios improved driven by lower slippages in corporate as well as consumer portfolios, it said. Thus, the outlook for credit cost remains controlled.
"The management is guiding for continued momentum in loan growth and is looking to end FY23 with a growth of 20 percent. Healthy provisioning in the MFI portfolio and contingent provisioning buffer of 1 percent of loans will enable a steep decline in credit cost, thus driving a sharp recovery in earnings," MOSL pointed out.
It estimates PAT to report a 40 percent CAGR over FY22-24, leading to 16 percent RoE in FY24E. It maintains a BUY rating with a TP of ₹1,450, indicating an upside of 19 percent.
Jefferies
For Q2 FY23, IndusInd Bank's profit has jumped 60 percent YoY, which is a tad ahead with better NII and lower provisions, said the brokerage.
Moderation in delinquencies and pick-up in retail growth that helped to sustain NIMs despite a rise in funding costs were positives, it noted. Jefferies sees more headroom from growth in MFI and business banking segments. It raised estimates by 2-5 percent and holds the lender among its top sector picks. The brokerage has a Buy tag on IndusInd Bank and has increased its target price to ₹ ₹1,530 from ₹1,330 earlier. The new TP indicates an upside of 25.5 percent.
Emkay
“The strong growth trajectory, coupled with a slight margin uptick and meaningful reduction in GNPA ratio is what we like. We believe the recent board approval of the MD’s term extension by 3 years is positive amid investor concerns about the MD likely not seeking a term extension. RBI approval, too, is keenly awaited, but we reckon it may not be a major hurdle," said Emkay in an earnings review note. The brokerage has retained its Buy call on the bank stock with a revised target price of ₹1,500 from ₹1,275 earlier. The new TP indicated an upside of 23 percent.
LKP Securities
As per the brokerage, the core operating performance of IndusInd Bank remains healthy. A higher contingent buffer is likely to safeguard the bank from credit disruption from various restructuring schemes, it noted. Thus, it retained a BUY rating on the lender with a price target of ₹1,474, indicating an upside of 21 percent.
The brokerage believes that the bank has made adequate provisioning against the potential stress and expects further credit cost normalization. Moreover, a healthy cash deposit ratio (82 percent) gives further room for credit growth. Thus, it has a positive outlook on the bank.
