Key Data

IndusInd Bank Ltd

Investment Rationale

During the quarter, the bank has witness net profit growth of 17.9 percent to Rs25 crore driven strong growth in NII. For the first nine months of the current fiscal, net profit grew by 29.4 percent to Rs 60.6 crore.During the quarter, advances of the bank grew by 15 percent to Rs12934 crore and deposits by 23 percent to Rs19570 crore. Margins improved on sequential basis by 17 bps to 1.74 percent in Q3FY08 on the back of upward repricing of loans. Asset quality disappointed marginally, Gross NPA increased from Rs367 crore in the Q3FY07 to Rs411 crore in Q3FY08 and Net NPAs increased from Rs288 crore to Rs313 crore for the same period. There are many positive changes happening in the bank, recently Mr.Ramesh Sobti, has been appointed as MD & CEO of the company who was earlier working with ABN Amro Bank. We expect with the change in the management, performance of the bank will improve in the coming quarters. Also, marketing company having 600 outlets, which was earlier subsidiary of Ashok Leyland Finance is now the subsidiary of the bank, has got the RBI approval to distribute entire range of retail banking products. This will enable the bank to increase its business and most importantly increase CASA deposits and its margins too. We reiterate BUY rating on the stock.

Key Developments: Margins improved

Margins of the bank improved to 1.74 percent in Q3FY08 from 1.12 percent in the first quarter of this yr and 1.57 percent in the second quarter. Margins of the bank are lower as compare to the industry since the bank has lower branch network and therefore lower CASA deposits, therefore bank has to resort to high cost deposits which is affecting its margins. Marginal improvement in the margins was due to repricing of loans; yield on advances improved by 203 bps to 12.01 percent (yoy). At the same time, cost of deposit of the bank also increased by 94 bps to 7.77 percent.

Financial Performance

Net profit of the bank grew by 17.9 percent

In Q3FY08, the bank witness net profit growth of 17.9 percent to Rs25 crore driven by decent business growth, margin improvement and slower growth in provisions. For the first nine months of the current fiscal, net profit grew by 29.4 percent to Rs60.6 crore.

Valuations

At CMP of Rs77, the bank is trading at 29.3 TTM Dec’07 earnings and 2.2x Dec’07 book value. There are many positive changes happening in the bank, recently Mr.Ramesh Sobti, has been appointed as MD & CEO of the company who was earlier working with ABN Amro Bank. We expect with the change in the management, performance of the bank will improve in the coming quarters. Also, marketing company having 600 outlets, which was earlier subsidiary of Ashok Leyland Finance is now the subsidiary of the bank, has got the RBI approval to distribute entire range of retail banking products. This will enable the bank to increase its business and most importantly increase CASA deposits and its margins too. We reiterate BUY rating on the stock.

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Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.
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