IndusInd: Capital market deal to complement growth
Experts see IL&FS Securities acquisition as positive for the lender
IndusInd Bank was one of the few large private banks without a major presence in the capital market business. With Tuesday’s announcement of acquiring IL&FS Securities Services (ILFS), it has partly bridged this gap. Even the Street cheered with the stock hitting its 52-week high at ~1,995 in Wednesday’s trading, before closing about 1 per cent lower as broader markets fell.
With little doubt, IndusInd has growth potential, given the looming merger of Bharat Financial, an expected 25-30 per cent rise in the loan book owing to recovery in the automobile industry, and the scope to grab a share of corporate lending as public sector banks continue to reel from pressure.
Also, its asset quality is likely to remain comfortable (gross non-performing assets were at 1.2 per cent as of March) with an over 36 per cent share of highly rated (AAA and AA) accounts in its corporate book.
The acquisition is expected to support value creation for IndusInd even if it does not add to its earnings. ILFS reported revenue of ~3.25 billion and net profit of ~450 million for 2017-18. ILFS is a leading capital market intermediary with a dominant market share in the clearing business of exchange traded derivatives with products such as broking back office, custodial and depository services, and Esop and loan against securities funding.
With over 1,000 broker and foreign portfolio investor accounts, these specialised services would augur well for IndusInd, as volumes are increasing and participation is improving in the capital markets.
“The latest ILFS acquisition will augment and complete the product and services offerings for IndusInd Bank. Financial products are often complementary in nature, and in this case too, a synergy may be expected,” said Lalitabh Shrivastava, assistant vicepresident at Sharekhan. Other analysts believe the next logical move will be to expand this business on the retail side. On the whole, the acquisition will augment overall growth for IndusInd, which is on a path to doubling its retail customer base to over 20 million and expanding its geographical reach (1,400 branches in 201718; a 6 per cent rise from 2016-17).
Analysts, who see the deal as attractive for the bank, foresee around a 5 per cent upside in the stock (according to Bloomberg consensus) from current levels.
The acquisition is expected to support value creation for IndusInd even if it does not add to its earnings