IndusInd Bank

Focused on creating organic and inorganic business opportunities – IndusInd Bank

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/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.1% lower at 17,547. Top gainers in NIFTY50 were COALINDIA (+3.6%), TECHM (+3.6%), and HINDALCO (+2.7%). The top losers were NESTLEIND (-1.5%), HDFC (-1.4%), and ICICIBANK (-1.2 %). The top gaining sectors were MEDIA (+13.6%), REALTY (+8.5%), and METAL (+1.5%) while the top sectoral losers were FINANCIAL SERVICES (-0.9%), BANK (-0.8%), and PRIVATE BANK (-0.7%).

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Excerpts of an interview with Mr. Sumant Kathpalia, MD & CEO – IndusInd bank (INDUSINDBK), aired on CNBC TV18 on 21st September 2021:

  • INDUSINDBK has planned a credit cost of 160-190 bps for FY22E with an additional 60-70 bps contingent provisions for Vodafone-Idea exposure. Will continue to take extra provision. There have been structural positive developments in case of the industry, but INDUSINDBK will wait for any further action from the Vodafone-Idea promoters before revising/lowering their planned provisions.
  • Collection efficiency in vehicle finance has been improving every month from the June-21 levels. In August, net collection was 97.5%. The bus segment and 3-wheeler segment are impacted due and require restructuring.
  • In the micro finance (MFI) segment, collections have to be looked at state wise. The overall portfolio efficiency is 94% barring states of Kerala, West Bengal, and Orissa that have accessibility issues. MFI will bounce back much stronger in 2HFY22 when covid-19 concerns reduce further.
  • In the vehicle finance book, seeing robust growth in car loans- especially used cars and scooters (90-95% of pre-covid), tractors (140% of pre-covid), construction equipment, LCVs (90-95% of pre-covid), and HCV (70%). Vehicle finance disbursements are almost coming to pre-covid levels (95-97%).
  • INDUSINDBK has been cautious with growth in MFI segment- specifically in Kerala, West Bengal, and Orissa and overall disbursement is at 70-80% of pre-covid levels.
  • On the non-vehicle side the bank is seeing growth coming back in loan against property LAP, MSME, commercial banking, and working capital.
  • In 1QFY22 loan book declined QoQ, whereas, management expects 2QFY22E to have some growth, but real growth will come in 2HFY22E.
  • FY22E exit growth in advances should be in double digits.
  • Within the corporate book, large corporates are seeing public sector spending but private sector capex has not taken off as expected, while working capital growth is robust. On the commercial side, there is deleveraging happening, while MSME is showing robust growth.
  • FY22E NIMs should be in the range of 4.15% to 4.25%. NIMs in 1QFY22 were 4.06% due to excess liquidity, and that will continue in 2QFY22E.
  • INDUSIND’s PPOP (Pre-provisioning Operating Profit) will continue to be be 5%+.
  • GNPA should remain within range of 2.6%-2.7% GNPA, and begin to reduce gradually, NPA should remain in range of 0.75%-0.84%
  • Restructuring book will increase in 2QFY22E as some vehicle finance segments need an extension in repayment.

Asset Multiplier comments:

  • Vehicle segments of buses and 3 wheelers have been impacted due to lower demand as schools, colleges and many offices are still shut. 3-wheeler drivers depend on the daily income and hence find it difficult to service loans when the requirement of 3-wheelere is lesser. Lending institutions across board are seeing asset quality issues in the vehicle finance space.
  • Corporate growth trends remain to be seen as there has been an increased focus on balance sheet strengthening across industries. Higher deleveraging and investing from internal cash flows could lead to lower corporate loan book growth for lenders.

Consensus Estimate: (Source: market screener and websites)

  • The closing price of INDUSINDBK was ₹ 1,143/- as of 22-September-2021.  It traded at 1.9x/1.6x/1.4x the consensus BVPS estimate of ₹ 615/693/804 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,139/- which trades at 1.4x the BVPS estimate for FY24E of ₹ 804/-


Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Cautious on MSME Portfolio – Indusind Bank

Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,497 (-0.9%). Among the sectoral indices, PSU Bank (+3.4%) was the only gainer. Pharma (-2.0%), Auto (-0.9%), and Financial Services (-0.8%) closed in the red. SBI Life (+2.7%), BPCL (+1.6%), and ONGC (+1.4%) were the top gainers. Tata Consumer (-4.3%), CIPLA (-3.1%), and Dr Reddy (-2.1%) were among the top losers.

Excerpts from an interview of Mr. Sumant Kathpalia, MD & CEO, Indusind Bank with CNBC-TV18 dated 03rd May 2021:

  • Speaking on the retail slippages, Mr Kathpalia said the increases in slippages were led by the commercial vehicle segment.
  • The collections in the month of April were 1% lower than the expected collections.
  • Speaking about MSME portfolio, he said the portfolio is worth Rs 110bn. These are loans given to small entrepreneurs for working capital requirements.
  • The loans given to entrepreneurs are secured in nature. The slippages in Q4FY21 were 3.5-4% and provisions are made.
  • The bank has given Rs 14bn into ECLGS scheme of SME portfolio. The commercial vehicle side of the book is doing well for the bank.
  • Transportation segment portfolio on the retail side is still lagging.
  • Speaking about vehicle finance, he said the disbursements had a growth of 30% YoY and in Commercial vehicles, the growth was 40% YoY.
  • The bank has a 12-14% market share in these segments and the bank will continue to maintain its high market share.
  • Speaking about the current environment, he said there is demand from large corporates and mid corporates. Going ahead the bank will stay cautious on its MSME portfolio.
  • In 4QFY21, the bank reported flat Net Interest Income (NII). Mr. Kathpalia said it was an outcome of low loan growth (3% YoY reported).


Asset Multiplier comments:

  • Several banks have a cautious stance on the MSME segment as lockdowns due to the 2nd wave of Covid-19 might impact small businesses.
  • In 4QFY21, Indusind Bank reported 30% YoY and 8% QoQ growth in vehicle disbursements. Certain state specific lockdowns might lead to decline in monthly auto sales which may impact the vehicle finance segment in 1HFY22E.


Consensus Estimate: (Source: Market screener website and websites)

  • The closing price of Indusind Bank was ₹ 912 as of 04-May-2021.  It traded at 1.4x/1.3 x the consensus BV per share estimate of ₹ 614/691 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,046/- which implies a PB multiple of 1.5x on FY23E BVPS of 691/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Deposit figures shot up since the announcement of Yes Bank moratorium: Romesh Sobti, IndusInd Bank

Update on the Indian Equity Market:

Markets seesawed the entire session after a one day break as Nifty closed marginally lower at 10,448. The increasing number of virus infections in the country has created uncertainty over the near term outlook for companies as many states are rushing to close public places to control the spread of the virus. Among the Nifty 50 stocks, YESBANK (36.7%), ZEEL (7.5%) and INFRATEL (6.6%) were the highest gainers whereas GAIL (-10.2%), TATASTEEL (-7.8%) and TATAMOTORS (-6.9%) were the top losers. Within the sectoral indices, MEDIA (1.7%), PVT BANK (0.4%) and FIN SERVICES (0.2%) were few of the gainers while PSU BANK (-3.9%), REALTY (-2.7%) and METAL (-2.1%) were the top losers.

Excerpts from an interview with Mr Romesh Sobti, MD & CEO, IndusInd Bank published in CNBC TV-18 on 9th March 2020:

  • IndusInd Bank has deferred its plans to raise funds through additional tier-1 (AT 1) bonds after a write-down in the AT1 bonds of Yes Bank under the restructuring plan. The bank’s board meeting that was scheduled for 9th March 2020 has also been deferred.  On this development, Mr Sobti said that the bank does not need capital on an urgent basis. He believes that the bank still has got enough fuel in the tank for the next 2 years for loan growth.
  • He said that the capital adequacy ratio of the bank is well beyond 15 percent and another 1 percent to come in from the residual preference share allotment to the promoters as a consequence of the Bharat Financial Inclusion merger.
  • He further said that they did not defer capital raising due to fear around AT1 bonds. The bank decided to defer the meeting as there is a lot of dust flying around the Yes Bank issue and IndusInd bank is still above the threshold level where the board is comfortable.
  • On the write-off of AT1 bonds, he said that the last word is not yet out on the fate of the bonds. He is waiting for the final resolution plan before concluding his remarks.
  • When asked about the Yes Bank fiasco, he said that the moratorium is a standard process that happens whenever this sort of restructuring or merger takes place. He said that the moratorium is going to be lifted sooner than later in the coming 30 days period.
  • Commenting on the behaviour of depositors since Yes Bank moratorium was announced, he said that the deposit figures of IndusInd have shot up since the announcement. As a result, the bank is carrying a huge amount of excess liquidity.
  • When asked if they would be interested in buying 5 percent stake in Yes Bank if they were approached by SBI, Sobti said that it is a very attractive proposition under current valuations.

Consensus Estimate: (Source: market screener website and websites)

  • The closing price of IndusInd Bank was ₹ 845/- as of 11-March-2020.  It traded at 1.6x/ 1.4x/ 1.2x the consensus book value estimate of ₹ 514/ 613/ 728 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for IndusInd Bank is ₹ 1,660/- which implies a PB multiple of 2.3x on FY22E BV of ₹ 728/-.

IndusInd Bank says growth will bounce back to mid-20% from 3QFY20

Update on the Indian Equity Market:
On Tuesday, BSE benchmark Sensex gained 291 points, while Nifty ended above 11,400-mark. Nifty Auto was the outperformer, FMCG and private bank stocks were strong while IT stocks dragged. Nifty Bank rose 1.3%, Bandhan Bank jumped 11% while Vedanta, ONGC, Maruti Suzuki were among the biggest Sensex gainers. Railway PSU IRCTC shares closed down 1.6% down at Rs 716.65. Indian Railway Catering and Tourism Corporation (IRCTC) got listed at Rs 644 on Monday on the BSE, more than doubling investor wealth since its IPO.

Key takeaways from the interview of Mr Sobti, MD & CEO, IndusInd Bank; dated 11th October 2019 with CNBC TV18:

  • Loan growth comes in at a multi-year low for IndusInd Bank in 2QFY20 while stressed assets woes added to the bank’s worries. Mr Sobti shared his views and outlook.
  • In terms of the pain in the banking sector, he said that compared to last year, net slippages are lower, gross slippages are the function of some technical issues because there are downgrades and then there are upgrades within a few days. The net figure for gross slippages is Rs 1700 mn. The Bank has had handsome recoveries in the stressed groups which were never non-performing assets (NPAs). The Bank is still hopeful that these stressed accounts will not leave any residual cost which hits the profit and loss (P&L).
  • He clarified that they have been more than transparent on disclosures as far as real estate exposures are concerned, they have remained steady in terms of percentage. Special mention accounts (SMA) data and the SMA-I data has been provided every quarter and the overdue is just Rs 280 mn of the whole lot.
  • In terms of market share, Mr Sobti mentioned that the Bank has gained market share in the vehicle finance area, it has grown 21 percent and in the auto industry, commercial vehicles (CVs) grew around 14 per cent, cars grew 19 per cent, two-wheelers grew 24 per cent. According to him, it’s a very handsome growth in a market which is shrinking.
  • Microfinance grew by 32 per cent; the bank has not lost market share anywhere and has received some repayments towards the end of Sep-19 quarter.
  • Mr Sobti thinks the underlying fundamentals are sound and the bank will bounce back to the mid-20s, if not better, Q3 onwards in terms of growth rate.
  • The total exposure to non-banking financial companies (NBFCs) is around 3.5 per cent.
  • Speaking about IndusInd Bank’s exposure to Indiabulls group, he said that exposure was 0.35% of the bank’s exposure which has come down to 0.27%.
  • Exposure to real estate financers remains steady at 3.8 per cent and has always remained below 4 per cent.
  • On loan growth, he further mentioned that in Q1 the loan growth was 28 per cent. So, for 1HFY20, the bank is in the mid-20s. In 2QFY20, the bank got some nice and strong repayments. For IndusInd Bank to get back to the mid-20s and beyond, might not require doing unusual sort of a stretch. Mr Sobti thinks IndusInd Bank should be ending the full year at least in the 25 per cent range if not better.
  • When asked about the next CEO appointment he mentioned that the next CEO will be appointed sooner than later.

 Consensus Estimate (Source: market screener website)

  • The stock price was ₹ 1,272/- as of close price of 15-10-19 and traded at 15x /12x /9x the consensus EPS for FY20E / 21E / 22E EPS of ₹ 84/108/133 respectively.
  • Consensus target price of ₹ 1,704/- implies a PE multiple of 13x on FY22E EPS of ₹ 133/-.

IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

Updates on Indian Market:

On Friday, BSE benchmark Sensex plunged over 434 points, while Nifty slipped below 11,200-mark as growth concerns overshadowed rate cut. Earlier in the day, the Reserve Bank of India cut interest rates for a fifth straight time by 25 basis points to 5.15 per cent, stepping up efforts to kick-start economic growth. In its fourth bi-monthly policy meet for FY20, the monetary policy committee cut FY20 GDP growth forecast sharply to 6.1 per cent from 6.9 per cent, taking into account the lower-than-expected growth rate in Q1FY20. Bank majors, including HDFC Bank (-2.8%), ICICI Bank (-3.1%), Kotak Mahindra Bank (-3.3%), State Bank of India (-1.7%) and Axis Bank (-1.8%) together dragged Sensex by over 340 points. All sectoral indices except BSE IT and Teck closed lower.

IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

 Excerpts from an interview with Romesh Sobti – Managing Director & CEO, IndusInd Bank

·       Mr Sobti mentioned that because of the heightened speculation and conjecture on a particular account – a housing finance company, the bank was obliged to inform the stock exchanges what was the actual exposure to the entity.

·       He added that one of their big initiatives was the provision coverage ratio (PCR) which had fallen after one large infrastructure relationship they classified as NPA (non-performing asset. INDUSINDBK made large provisions for it and the same was communicated to the market as well. Their aim is to take that PCR back to at least the 60s and there is a good beneficial impact that it has come as a consequence of the tax savings. A large part of tax savings will help them to raise the PCR and is expected to reflect from Sep-19 quarter itself.

·       He clarified that exposures in various sectors have remained constant. There has not been a residual loss because of so-called stressed account. In fact, there have been very significant recoveries in the stressed accounts. They were not stressed in their books as they are not overdue.

·       Mr Sobti said even though there has been some conjecture and speculation on the higher-margin businesses like a commercial vehicle or microfinance institutions (MFIs) these portfolios are performing very robustly and well up to their credit standards seeing no adverse trends.

·       He mentioned that the deposit growth has been strong in the last few quarters and has remained robust in this quarter because of the huge drive to raise retail fixed deposits.

·       Mr Sobti expects deposit growth to show the same trend as seen in the past since INDUSINDBK is getting Rs 50-60 bn of retail deposits every quarter.

 Consensus Estimate (Source: market screener website)

 ·       The stock price was Rs 1282/- as of close price of 04-10-19 and traded at 14x /11x /9x the consensus EPS for FY20E / 21E / 22E EPS of Rs 88/112/133 respectively. Consensus target price of ₹ 1807/- implies a PE multiple of 16x on FY21 EPS of ₹112/-