IndusInd Bank Q2 Results Review - Deposit Mobilisation Remains Key Focal Point: Systematix

Systematix Research Report

IndusInd Bank Ltd. reported Q2 FY24 earnings of 22 billion (+23% YoY/4% QoQ) in-line with estimates of Rs 22.2 billion with strong underlying growth in the consumer finance and small business loan segments. Key highlights for the quarter were:

1. advances growth of 21% YoY/4% QoQ was driven by consumer finance segment at 25% YoY/6.4% QoQ and small business loans at 50% YoY/8% QoQ.

2. deposit growth of +14% YoY, +4% QoQ with current account and savings account ratio declining a modest 55 basis points QoQ,

3. Net interest margin remained flattish QOQ as 9 bp QoQ increase in cost of funds was largely offset by yield increase. NIM is guided to remain near the current levels of 4.2-4.3% over FY24.

4. Cost to income ratio increased +100 bps QOQ to 46.9% on account of higher employee additions, investment in distribution and technology spends for new platform launches and growth in granular segments like micro finance segment. As per management, opex is expected to remain elevated in near term with FY24 exit CIR at 45% and 41-43% thereafter.

5. on a QOQ basis, overall gross/net non-performing asset at 1.9%/0.6% was stable, with improvements in the vehicle finance portfolio being offset by increases in other consumer segments like MFI (+13 bp), cards (+21 bp) along with a large corporate exposure of Rs 1.68 billion moving from special mention account-II to NPA bucket.

We introduce the FY26 estimates, rollover the forecasts to December 2025 and maintain our 'Buy' rating with Dec-24 target price of Rs 1,640 (from Rs 1,580). We value the bank at 1.6 times Dec-25 adjusted book value per share for average return on equity of 15.6% over FY24/25/26E.

We factor continued growth in higher yielding businesses of vehicle finance/microfinance (post recent investments in digital and capacity additions) with relatively stable margins over the forecast period.

We also factor in elevated CIR at ~45% and credit costs of ~115 bps over the forecast period.

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