IndusInd’s asset quality remain stable as GNPA declined to 2.77% versus 2.88% QoQ led by higher upgrades and recoveries. However, Restructured book increased to 3.6% versus 2.7% QoQ which comprises of 50% Vehicle, 15% non-vehicle and rest from corporate book. Bank reported collection efficiency at 98% for Sept month versus 96% for June month.

Deposit reported growth of 21% YoY; advances growth improved to 10% YoY vs 6%YoY (Q1FY22). Management guided for credit growth of 16-18% CAGR in next 2 years which is the key monitorable along with CV cycle uptick expected in H2FY22. NII grew by 12% YoY (up 3% QoQ) while NIMs remain flat QoQ.

Non-interest income grew by 18% YoY (up 3% QoQ). PAT grew by 73% YoY due to decline in provisions (down 13% YoY). Bank maintains overall provision of Rs 20.5 billion as standard contingent provisions and 3.6% of loan related provision. "We have moved to FY24E estimates and maintained ‘Buy’ rating with a new TP of Rs.1,360 (Rs.1,140) based on P/BV of 1.6x FY24E," stated IDBI Capital Equity Research.

Key highlights and investment rationale

Credit growth improved sequentially: Credit growth improved to 10% YoY (vs 6% Q1FY22) due to improvement in corporate book growth (7% QoQ) with fresh lending picked up. Retail book now stands at 55% of the total loans with addition of Business Banking and MFI portfolio to it. Deposits grew by 21% YoY (26% YoY Q1FY22) led by 17% YoY growth in term deposits and 26% YoY growth in CASA deposits.

Asset quality stable; 3.6% restructured book: Bank asset quality stable with GNPA at 2.77% vs 2.88% QoQ; NNPA at 0.8% vs 0.8% QoQ with stable PCR at 72%. Bank restructured book stands at 3.6% of book (vs 2.7% Q1FY22). Bank maintains contingent provisions of Rs 31.8 billion which provided cushion on P&L impact from any adverse impact of telecom sector.NIMs remain stable: NIMs remain stable at 4.07% although cost of funds declined.

Outlook: Continuation of business strategy under the new CEO has resulted in navigating through asset quality concerns better. Also, bigger concern on deposits growth which is the key ingredient for banking industry has largely abated.

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