Focused on creating organic and inorganic business opportunities – IndusInd BankRutuja Chavan
Update on the Indian Equity Market:
On Tuesday, NIFTY closed in the green at 17,266 (+0.3%) near its high of 17,300. Among the sectoral indices, PSU BANK (+0.8%), METAL (+0.8%), and PHARMA (+0.5%) were the top gainers and MEDIA (-1%), REALTY (-0.8%) and IT (-0.3%) were the sectoral losers. TATASTEEL (+3%), CIPLA (+2.0%), and RELIANCE (+1.7%) were the top gainers. ONGC (-2.8%), POWERGRID (-1.8%), and SBILIFE (-1.3%) were among the top losers.
Excerpts from an interview of Mr. Sumant Kathpalia, MD & CEO, IndusInd Bank (INDUSINDBK) with Economic Times dated 07th February 2022:
- INDUSINDBK had slowed down their microfinance business and hence the disbursements grew only by 3% sequentially. Disbursement growth came at 4.5% without microfinance as always guided by the company.
- On deposits, they are as good as the industry and are very comfortable with the way the growth is coming back.
- Microfinance currently holds 12.5% of INDUSINDBK’s portfolio. It has guided about the proportion being limited to 15% of the total portfolio. It has diversified the rural vertical into various other businesses and is growing rapidly in the merchant acquiring business.
- The deep rural book that is of ₹ 1500 mn currently, is expected to reach a value of ₹ 5,000 mn by the end of FY23E.
- INDUSINDBK has launched a new platform with a focus on five verticals. Out of these, easy credit for personal loans and credit cards are already launched. It is in the market since January and the company is seeing a rapid increase in disbursements as well as the experience the clients are getting in it.
- They have launched ‘Indus Wheels’ which specifically focuses on vehicle finance and they expect to see a different used car experience in the market from February end or March onwards.
- INDUSINDBK has launched one or two commercials about their merchant acquiring business and saw a good response to the same. They have a few launches lined up that will be millennial prepositions, hugely interactive offering personalized user experience.
- They have created provisions of ₹ 3,328 mn as a protection against any future shocks. They have also done a ₹ 1,400 mn provision on the restructured book.
- The company will now lend at 230 bps and believes that the credit cost should settle around 120 to 150bps.
- INDUSINDBK has always been interested in para-banking. They are looking to add a fourth domain which can come out of affordable housing, wealth management, mortgage, or a business like a merchant acquisition. The main objective of this domain is to create a business opportunity that can be organic or inorganic.
- The promoters of the bank are awaiting the operating guidelines on the 26% promoter limit allowed by the RBI. Once these guidelines are clear and if the bank needs funds, the promoters will be the first ones to infuse capital into the company.
- Vodafone-Idea business has to start playing out for INDUSINDBK to reverse its provisions. Vodafone is expected to come back to the banker’s consortium wagon with a definitive business plan about how they will raise funds and how the business is going to grow. Once that is finalised, how Vodafone’s business gets executed over two or three quarters will decide if the provisions will start reversing.
- MSME and SME sectors are growing. On the corporate and on the MSME side, the company is confident about being ahead of the market and not an outlier.
- Kathpalia expects the central bank will continue to support growth and the increase in rates will not be passed on to the end consumers immediately.
- Four things to look at in FY23 for INDUSINBK: 1) Now that the balance sheet is stable, they will be focused on the bank’s growth momentum, 2) PPOP margins have been highest or second highest in the industry around 5.9% to 6% and will be maintained between 5.75% to 6%. 3) Credit costs are expected to swing back and land between 120 and 150 bps and 4) The bank’s fourth domain should come into existence in the form of para banking or affordable housing or wealth management.
Asset Multiplier comments:
- With economic activities picking up, the disbursements in vehicle finance and microfinance are expected to start gaining momentum.
- The bank has sufficient provisioning which is expected to reduce credit costs and improve its margin trajectory in the subsequent quarters.
- We expect healthy traction in the bank’s loan book and an increase in disbursements due to the introduction of technology-driven services.
Consensus Estimate: (Source: Market screener and investing websites)
- The closing price of IndusInd Bank was ₹ 938/- as of 08-February-2022. It traded at 1.5x/1.3x/1.2x the consensus book value per share estimate of ₹ 611/688/784/- for FY22E/FY23E/FY24E respectively.
- The consensus average target price is ₹ 1,267/- which implies a P/BV multiple of 1.6x on FY24E BVPS of ₹ 784/-.
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