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Buy IndusInd Bank, target Rs 1,800: Phillip Capital


Date: 24-05-2019
Subject: Buy IndusInd Bank, target Rs 1,800: Phillip Capital
Phillip Capital (India) has given a buy recommendation on IndusInd Bank with a target price of Rs 1,800. 

Shares of IndusInd Bank traded at Rs 1,594.1 around 1:30 pm on 23 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price. 

March quarter highlights:

Total income of Rs 3,790 crore, up 18 per cent year-on-year (YoY), was in line with the brokerage's estimates.

NII at Rs 2,230 crore was below the brokerage's expectations. Fee income at Rs 1,560 crore, up 29 per cent YoY, remained strong. Opex was up 19 per cent YoY to Rs 1720 crore. Provisions increased 157 per cent QoQ to Rs 1,560 crore. Overall Profit came at Rs 36 crore.

NII, at Rs 2,230 crore, was below expectations on account of 24bps decline in NIM. This was due to Rs 150 crore interest reversal in IL&FS. Excluding the impact, NIM was up 1bps QoQ to 3.84 per cent.

Slippages were higher QoQ. The bank added Rs 3,600 crore in fresh NPAs; this includes Rs 3,000 crore exposure to IL&FS group. Excluding these, slippage in corporate segment was Rs 230 crore.

GNPA and NNPA stood at 2.1 per cent and 1.2 per cent QoQ, respectively. PCR declined to 43 per cent QoQ. 

Investment rationale: 

"We believe IndusInd Bank will continue reporting strong performance led by robust growth in advances. Merger with Bharat Financial will enable the entity to realize synergies in funding costs and provide an opportunity to drive revenues from cross-selling," said the brokerage. 

The 1.9 per cent exposure on stress corporate will act as deterrent for the bank to move back to its previous peak valuation, the brokerage added. 

"We have factor some slippage from these stress pool. Even after factoring the consequential provisioning impact on stress loan, the risk-adjusted RoA should continue to remain strong, driven by earnings growth of over 25 per cent over FY19-21 on merged basis," said the brokerage. 

Source: economictimes.indiatimes.com