Should you 'Buy' IndusInd Bank when markets open tomorrow? Here's what experts suggest

The stellar Q1FY20 did little to boost investors faith on private lender IndusInd Bank as its stock price finished at Rs 1,510.35, per piece down by Rs 30.50 or 1.98 per cent on Sensex last week on Friday. The bank posted its June 2019 (Q1FY20) result with a net profit of Rs 1,433 crore.  The bank had recorded PAT of Rs 1,036 crore in Q1FY19 and Rs 360 crore in Q4FY19. Sure, IndusInd Bank did see selling sentiments in the last few hours of the trading session. However, when markets open tomorrow, you might not want to miss out on this stock. Experts are still optimistic on IndusInd Bank with buy to hold ratings. 

Here’s what the experts say:

Mona Khetan and D. Vijiya Rao, research analysts at Reliance Securities said, “IndusInd Bank (IIB) has reported a better-than-expected PAT growth in 1QFY20 driven by higher treasury gains and lower-than-expected provisioning. Ex-BHAFIN loan book grew by 26% YoY, with the lowest sequential credit growth of 1.9% in the last 6 years. Consequently, while overall margins improved to 4.1% owing to the BHAFIN merger, IIB’s margins at 3.7% (ex-BHAFIN) were lower than average margins of 3.9% over the last three fiscals. Asset quality was well contained, with GNPA at 2.15%, marginally higher on QoQ comparison.” 

The duo added, “Deposits growth at 26% YoY was primarily driven by retail deposits, with a sequentially stable CASA. Core fee income growth remained healthy at 22% YoY and remains well diversified, aiding earnings quality. Looking ahead, we expect moderation in loan growth and risks of higher credit cost to continue to weigh on IIB’s valuation, whilst the benefits of BHAFIN merger will aid its RoAs.”

They further said, “We factor in higher credit cost for FY20E (at 117bps against the Management’s guidance of 60bps) given the risk of slippages from the corporate portfolio and the need for increasing PCR. We expect moderation in loan growth and risks of higher credit cost to continue to weigh on IIB’s valuation, going forward. Nonetheless, a healthy and diversified fee-based income and the benefits of BHAFIN merger will boost its RoAs to 1.7%/1.9% in FY20E/FY21E. Trimming our earnings estimates by 2-3% for FY20E/FY21E owing to lower loan growth, we maintain our HOLD recommendation on the stock with a revised Target Price of Rs1,600 (from Rs1,650 earlier) based on 2.8x FY21E adjusted book value.”

Manish Agarwalla and Sujal Kumar, research analysts at Phillip Capital said, “Merger with Bharat Financial will enable the entity to realize synergies in funding costs (for the BFIL business) and provide an opportunity to drive revenues from cross‐selling. Exposure on stress corporate to continue to act as a deterrent for IIB to move back to its previous peak valuation in the near term."

"However even after factoring the consequential provisioning impact on stress loan, the risk‐adjusted RoA should continue to remain strong, driven by earnings growth of 25%+ over FY19‐21 on merged basis. We maintain BUY with a target of Rs 1,800, valuing the stock at 3.0x FY21 ABVPS of Rs 598," they added.

If we take into consideration the buy target price, then IndusInd Bank is set to rise by over 19 per cent.

Q1FY20 highlights

Net Interest Income (NII) for the quarter is Rs. 2,844 crores as against Rs. 2,122 crores in the corresponding quarter of the previous year, registering a robust growth of 34 %. 

CASA (Current Accounts- Savings Accounts) Ratio stands at 43.04 % as on June 30, 2019 as against 43.42% as on June 30, 2018. Total Deposits as on June 30, 2019 is at Rs. 2,00,586 crores as compared to Rs. 1,58,862 crores on June 30, 2018, up by 26%. Total Business is at Rs. 3,94,106 crores. While, savings accounts balance as on June 30, 2019 is at Rs. 57,652 crores, rose 21 % from Rs 47,711 crores as on June 30,2018. 

Meanwhile, total advances as on June 30, 2019 is at Rs. 1,93,520 crores as compared to Rs. 1,50,675 crores on June 30, 2018, recording a growth of 28 %. Also, net NPA as on June 30, 2019 is at 1.23 % as against 0.51 % on June 30, 2018.