Maintain ‘buy’ on IndusInd Bank with price target of R835 per share. We have marginally adjusted our earnings and target price, assuming a slightly faster growth. The bank may look to raise capital earlier than anticipated as growth outlook is looking up. Current Tier-I is at >12%. The stock trades at 3.5x FY16e P/B.
We find the management is becoming more aggressive on its growth outlook – higher branch opening, strong traction in CASA and retail loans, faster increase in NIMs, etc, translating into better RoA/RoEs. Over the next two years, we expect RoAs to be over 2% (currently 1.8%) and RoEs over 20% (currently 18%) and we expect earnings CAGR of 30% for Indusind Bank.
Our key takeaways from the management meeting are: Branch opening is likely to be accelerated from the current run rate of 150 branches to about 225-250 branches per year. From the current CASA of 34%, the bank expects 40% by March 2017. While this looks ambitious, management highlights that its aggressive branch roll out, the success of its product/marketing campaigns makes it fairly confident of moving towards that number.
With improving CASA, declining wholesale rates, loan mix shifting towards retail, margins will clearly inch up starting from Q3FY15 onwards. We are building into our model a 10 bps margin improvement in FY15 and FY16. Asset quality remains stable; Restructured book may increase marginally. Overall credit costs to be limited to 55-60 bps.
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