Buzzing Stock: Emkay Global has buy rating on IndusInd Bank, target Rs 550
The bank’s near-term performance will track its ability to manage Covid-19-led disruptions on its growth/asset quality.
By ETMarkets.com | Updated:
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Emkay Global has given a buy rating to IndusInd Bank with a target price of Rs 550 over 12 months.
Despite higher pre-provisioning operating profit (PPoP) led by strong NIMs, the bank reported lower PAT at Rs 3 billon due to higher Covid-19-related provisions (Rs 2.8 billion) and NPA provisions in the quest to improve provision coverage ratio (PCR) to over 60%. It also made an initial telecom provision of Rs 0.75 billion (8% on FB Voda-Idea exposure). After a sharp 7% quarter on quarter run-down in Q4, the bank has accelerated deposit mobilization (Rs 60 billion till date). The bank will unveil PC5 (2020-25) business strategy in Q1 with the focus on retailisation of credit/deposits and earnings sustainability by building a higher PCR buffer.
The share price moved up by 8.15 per cent from its previous close of Rs 407.40. The last traded price is Rs 440.60. Incorporated in 1994, IndusInd Bank has a market cap of Rs 28251.94 crore.
Investment Rationale
The bank has guided for an 80 bps jump in gross non-performing assets (GNPA) ratio and loan loss provision (LLP) to 175 bps (50bps over Bank Addressable Unit or BAU LLP of 125bps in FY20) due to Covid-19. The brokerage prefers to build higher LLP at 250bps/160bps in FY21/22E as the extended lockdown may lead to higher impairments in retail/corporate book. Thus, the brokerage expects lower RoAs at 1.4-1.6% over FY21/22E. The bank’s near-term performance will track its ability to manage Covid-19-led disruptions on its growth/asset quality. The brokerage maintains buy, with a revised target price of Rs 550 (implying 0.9 times FY22 adjusted book value) mainly due to its lower valuations and healthy capital position.
Financials
For the quarter ended March 31, 2020, the company reported consolidated Interest Income of Rs 6223.42 crore, up 2.32 per cent from last quarter Interest Income of Rs 6082.32 crore and up 27.15 per cent from last year's same quarter Interest Income of Rs 4894.74 crore. The bank reported net profit after tax of Rs 315.18 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 14.38 per cent stake in the company as of the third quarter ending December 31, 2019, while FIIs held 55.22 per cent, DIIs 14.06 per cent and public & others 15.45 per cent.
Despite higher pre-provisioning operating profit (PPoP) led by strong NIMs, the bank reported lower PAT at Rs 3 billon due to higher Covid-19-related provisions (Rs 2.8 billion) and NPA provisions in the quest to improve provision coverage ratio (PCR) to over 60%. It also made an initial telecom provision of Rs 0.75 billion (8% on FB Voda-Idea exposure). After a sharp 7% quarter on quarter run-down in Q4, the bank has accelerated deposit mobilization (Rs 60 billion till date). The bank will unveil PC5 (2020-25) business strategy in Q1 with the focus on retailisation of credit/deposits and earnings sustainability by building a higher PCR buffer.
The share price moved up by 8.15 per cent from its previous close of Rs 407.40. The last traded price is Rs 440.60. Incorporated in 1994, IndusInd Bank has a market cap of Rs 28251.94 crore.
Investment Rationale
The bank has guided for an 80 bps jump in gross non-performing assets (GNPA) ratio and loan loss provision (LLP) to 175 bps (50bps over Bank Addressable Unit or BAU LLP of 125bps in FY20) due to Covid-19. The brokerage prefers to build higher LLP at 250bps/160bps in FY21/22E as the extended lockdown may lead to higher impairments in retail/corporate book. Thus, the brokerage expects lower RoAs at 1.4-1.6% over FY21/22E. The bank’s near-term performance will track its ability to manage Covid-19-led disruptions on its growth/asset quality. The brokerage maintains buy, with a revised target price of Rs 550 (implying 0.9 times FY22 adjusted book value) mainly due to its lower valuations and healthy capital position.
Financials
For the quarter ended March 31, 2020, the company reported consolidated Interest Income of Rs 6223.42 crore, up 2.32 per cent from last quarter Interest Income of Rs 6082.32 crore and up 27.15 per cent from last year's same quarter Interest Income of Rs 4894.74 crore. The bank reported net profit after tax of Rs 315.18 crore in the latest quarter.
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Promoter/FII Holdings
Promoters held 14.38 per cent stake in the company as of the third quarter ending December 31, 2019, while FIIs held 55.22 per cent, DIIs 14.06 per cent and public & others 15.45 per cent.
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