IndusInd Bank jumps 5% as brokerages remain strong despite weak Q4 earnings

Asset quality weakened with the gross NPA rising at 2.10 percent in Q4 against 1.13 percent in Q3FY19

IndusInd Bank shares rallied another 5 percent intraday on May 23 as brokerages remained strong despite weak earnings in March quarter.

The stock was quoting at Rs 1,599, up Rs 81.45, or 5.37 percent on the BSE, at 0925 hours IST. It had gained 4.84 percent in the previous session after positive management commentary.

The management after earnings told CNBC-TV18 that the bank wanted to put IL&FS behind in FY19 and entire exposure to IL&FS has turned into NPAs in Q4. "We made additional provisions of Rs 1,120 crore in Q4 and we expect 90–100 percent recovery from IL&FS operating company."

The private sector lender reported a massive 62.2 percent year-on-year decline in profit at Rs 360.1 crore in Q4, which was far below CNBC-TV18 poll estimates of Rs 744 crore. The sharp increase in provisions (majorly related to IL&FS) and less than expected growth in NII dented earnings growth.

"IIB's earnings were below estimates mainly due to the bank providing incrementally Rs 1,120 crore on recognizing IL&FS which had been indicated earlier. Ex-IL&FS, core performance has been decent but was weak on NII due to impact from cost of funds and was led by other income," Prabhudas Lilladher said.

"Bank explained provisions on IL&FS are enough. Also, it has only 1.9 percent FB+NFB exposure to recent stressed groups, also SMA-1 & SMA-2 together remains benign at 0.6 percent of loans," he added.

Net interest income grew 11.2 percent YoY to Rs 2,232.4 crore in Q4, with loan growth at 28.6 percent YoY. "Net interest margin ex-IL&FS remained stable and with Bharat Financial, net interest margin should cross 4 percent," the management said.

Asset quality weakened with the gross NPA rising at 2.10 percent in Q4 against 1.13 percent in Q3FY19. Provisions shot up sharply to Rs 1,561 crore in the quarter ended March 2019, compared to Rs 606.7 crore in December quarter and Rs 335.6 crore in Q4FY18.

Brokerage: Motilal Oswal | Rating: Buy | Target: Rs 1,900 | Return: 25 percent

IndusInd Bank has accelerated its provisions toward the infra group and disclosed total fund+non-fund exposure of 1.9 percent toward other potentially stressed groups. The bank has achieved healthy coverage on its infra exposure, and also has healthy collateralization levels on the stressed exposure (140 percent), which will help limit credit cost during FY20 (guidance of 60bp).

Merger with Bharat Financial will strengthen the earnings profile and further boost the return ratios. We conservatively factor in higher credit cost of 100/80bp over FY20/21, resulting in 8/3 percent cut in FY20/21 earnings estimates. We, nevertheless, estimate the bank to deliver FY20/21 RoA of 2.0/2.1 percent and value the stock at Rs 1,900 (3x FY21E ABV).

Brokerage: Prabhudas Lilladher | Rating: Buy | Target: Rs 1,832 | Return: 21 percent

Bank should quickly come back on track as operationally it remains strong with better NIM+fees, control in opex and moderation in credit cost, helping deliver returns on equities of 17-18 percent in the next two years. We maintain buy with a revised target price of Rs 1,832 (from Rs 1,791) based on 3.2x multiple as we roll forward to Mar-21 ABV.

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IndusInd Bank to post its Q4 numbers today; here's is what brokerages expect

Motilal Oswal expects IndusInd Bank to report strong loan growth of ~32 percent YoY in Q4FY19

Private banking major IndusInd Bank is likely to report its March quarter earnings on May 22.

Research and broking firm Kotak Institutional Equities expects IndusInd Bank to report net profit at Rs 599.5 crore down 37.1 percent year-on-year (down 39.1 percent quarter-on-quarter). Net Interest Income (NII) is expected to increase by 17.7 percent YoY (up 3.3 percent QoQ) to Rs. 2,363.3 crore.

Pre Provision Profit (PPP) is likely to rise by 3 percent YoY (down 13.9 percent QoQ) to Rs 1,823.1 crore.

Motilal Oswal is of the view that IndusInd Bank is likely to report a net profit of Rs 526.1 crore down 44.8 percent year-on-year (down 46.6 percent quarter-on-quarter). Net Interest Income (NII) is expected to increase by 19.7 percent YoY (up 5.1 percent QoQ) to Rs. 2,403.7 crore while Pre Provision Profit (PPP) is likely to rise by 27.6 percent YoY (up 6.6 percent QoQ) to Rs 2,257.6 crore.

The research firm expects IndusInd Bank to report strong loan growth of ~32 percent YoY in Q4FY19, significantly ahead of system loan growth. Deposit growth should also remain strong at ~22 percent YoY while margins are likely to remain flattish QoQ at ~3.9 percent.

Key issues to watch for

Impact on the CV portfolio, particularly after the slowdown in

CV sales.

Corporate asset quality will be a key monitorable

Provisioning and further developments on the IL&FS exposure

According to Narnolia Financial Advisors, corporate and non-vehicle yield of IndusInd Bank is expected to increase due to hike in MCLR rate, but yield on vehicle finance will be under pressure to fixed-rate yield. However, the research firm expects margins to remain under pressure with the rising cost. NII growth is expected to grow at 21 percent YoY.

Other income is expected to grow at 25 percent YoY. Exposure to IL&FS is Rs 3,000 crore of which Rs 2,000 crore is towards parent company for which the bank has provided provisions of Rs 600 crore. Asset quality is expected to improve with the moderation in slippages ratio at 0.32 percent in Q4FY19. Going forward provision on IL&FS is likely to remain high on 4Q FY19, the report added.

Loan growth is expected at 30 percent YoY while deposit is likely to grow at 24 percent YoY because of an increase in CASA.

Key trackable this quarter

NIM PerformanceSlippages trend

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