This lender is a cut above the rest, soars 1,700% in 10 years

NEW DELHI: There goes a saying when it comes to equity investment -- What is too popular may not be profitable. Like others, this too has exceptions.

Private lender IndusInd Bank (IIB) is one such case, which is both popular and profitable at the same time. The bank, which takes its name from the Indus Valley civilisation, has been a gem of a stock in the banking sector and rewarding investors consistently.

In the last 10 years, the stock rallied a whopping 1,692 per cent, giving many of its peers sleepless nights. Just look at the Bank Nifty which surged 132 per cent. The benchmark Sensex was up 98 per cent during the same period.

The bank came up with a good show in the December quarter as it posted a 25 per cent YoY rise in its net profit at Rs 936.25 crore. NII (net interest income) grew 20 per cent to Rs 1,894.81 crore and operating profit stood at Rs 1,664.69 crore, up 22 per cent YoY.

However, asset quality -- gross NPA up 8 bps QoQ to 1.16 per cent -- deteriorated marginally and was spread across segments.

Terming IndusInd Bank as a 'habitually consistent', brokerage HDFC Securities in its research report said, "Clarity of objectives and precise execution remain IIB’s key competencies. We believe expansion of the CFD (consumer finance division) slice (targeting 50 per cent of loans by FY20), further uptick in CASA deposits (a goal to reach 45 per cent) and a tight leash on costs will propel best in class return ratios to new highs (1.84 per cent in FY20). This coupled with the impending merger (expected in Q2 FY19) will provide a further uplift to earnings."

The brokerage has buy rating on the stock and says it is expected to react positively as business momentum continues.

The bank last year announced merger with microfinance company Bharat Financial Inclusion (BFIL). BFIL received clearance from the Competition Commission of India (CCI) while nod from the Reserve Bank of India (RBI) and other statutory bodies is still awaited. Media reports say the merger may take another six months to formalise.

Another brokerage Axis Securities is also extremely bullish on the stock. "We are enthused by IIB’s growing retail franchise, stable asset quality and increasing market share in the large corporate segment. We remain watchful of the developments from the acquisition of MFI businesses, not factored in our estimates," it said in its research report.

The brokerage gave a buy rating on the stock with a target price of Rs 2,060 in its report dated January 17, 2018.

The brokerage lists four key drivers of the company, namely loan growth, NIM, CASA and the GNPA ratio.

Credit book of the bank expanded 25 per cent YoY and low cost deposits share rose to 43 per cent, translating into 20 per cent YoY expansion in NII. "We prefer IndusInd Bank, mainly owing to its likely robust advances and deposits growth and improving productivity, which could drive PAT by 29 per cent CAGR over FY17-20E, with RoA (return on assets) of 1.9 per cent over the same period. We maintain our buy rating on the stock with potential price of Rs 2,100," said Choice Broking.

The company has been a consistent performer. According to Screener.in, it has good continued profit growth of 29 per cent over 5 years.

Mohsin Chamadia, AVP, LKP Securities, said: "My view on IndusInd Bank is a strong hold to add on dips. My FY19 target for the stock is placed at Rs 2,080. IndusInd has been performing well, but keeping in mind the rally we have seen in the entire bank sector last year, I believe there could be a downside in all banks... this could be used as buy on dips for IndusInd Bank. For those who already bought it at a lower price, it’s a hold for target of Rs 2,080."

The company sports a market capitalisation of Rs 98,592.18 crore. Here's its shareholding pattern: