In­dusind Bank wins con­sis­tency game but some red flags show

Mint ST - - MARK TO MARKET - Aparna Iyer aparna.i@livemint.com

In­dusind Bank Ltd ticked all the right boxes in the quar­terly re­sults list with con­sis­tent growth in net profit and core rev­enues for the sec­ond straight quar­ter. The bank’s net profit grew by 25% to Rs880 crore for the three months ended Septem­ber on the back of a strong 25% growth in core in­come and was in line with Street es­ti­mates.

The pri­vate lender also didn’t dis­ap­point on in­dus­try-beat­ing loan and de­posit growth of 24% and 26%, re­spec­tively for the three months ended Septem­ber. In fact, In­dusind Bank saw a record quar­ter in terms of dis­burse­ment in com­mer­cial ve­hi­cle loans, the bedrock of its con­sumer fi­nance seg­ment. Com­mer­cial ve­hi­cle loans grew at 13% year-on-year and other seg­ments too showed a healthy growth. This dis­burse­ment surge has helped the lender di­ver­sify its loan mix to a rea­son­able cor­po­rate to re­tail ra­tio of

The pri­vate sec­tor lender posted in­dus­try-beat­ing loan growth of 24%. 53:47.

At a time when cor­po­rate credit de­mand is al­most co­matose, In­dusind Bank has man­aged to grow its book by 26% from the year-ago pe­riod. It has also kept its as­set qual­ity from weak­en­ing, which in­di­cates that the qual­ity of bor­row­ers is good. Bad loan ra­tios, both on a gross and net ba­sis, have re­mained un­changed from the pre­vi­ous quar­ter. In­vestors be­gin to ex­pect sim­i­lar growth ev­ery quar­ter and the lender has per­fected the trick to not dis­ap­point them.

The bank’s talks with mi­crolen­der Bharat Fi­nan­cial In­clu­sion for a merger are on and the mar­riage will help in fur­ther di­ver­si­fy­ing the loan book of In­dusind Bank. Man­ag­ing di­rec­tor Romesh Sobti stressed again that the bank is tar­get­ing an in­crease in the share of mi­cro­fi­nance to 6% over the next three years from the cur­rent 2.18%.

The bank main­tained its net in­ter­est mar­gin at 4% helped by the sharp jump in the pro­por­tion of low-cost de­posits. Con­sid­er­ing that the de­posit del­uge in the af­ter­math of de­mon­e­ti­za­tion has run its course, the mas­sive 95% surge in sav­ings ac­count de­posits of the pri­vate lender comes as a pleas­ant sur­prise. While it would be pru­dent to not ex­pect a growth close to this in the com­ing quar­ters, the ben­e­fit of the rise in low-cost de­posits on mar­gins can­not be ig­nored.

An­a­lysts be­lieve th­ese are rea­sons enough to have a buy rat­ing on the bank even though the stock trades at a rich mul­ti­ple of 4.4 times the es­ti­mated book value for fis­cal 2018.

It would be good to look at po­ten­tial problems as well. For starters, the record growth in com­mer­cial ve­hi­cle loan dis­burse­ments can hardly hold since it stems from a low base. Fur­ther, the bank has exposure to nine out of the 40 trou­ble­some ac­counts listed by the Re­serve Bank of In­dia (RBI) to be re­solved im­me­di­ately or re­ferred un­der the In­sol­vency and Bankruptcy Code (IBC). The bank has made ad­e­quate pro­vi­sions but even­tual hair­cuts will need to be mon­i­tored.

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