IndusInd Bank says growth will bounce back to mid-20% from 3QFY20

Update on the Indian Equity Market:
On Tuesday, BSE benchmark Sensex gained 291 points, while Nifty ended above 11,400-mark. Nifty Auto was the outperformer, FMCG and private bank stocks were strong while IT stocks dragged. Nifty Bank rose 1.3%, Bandhan Bank jumped 11% while Vedanta, ONGC, Maruti Suzuki were among the biggest Sensex gainers. Railway PSU IRCTC shares closed down 1.6% down at Rs 716.65. Indian Railway Catering and Tourism Corporation (IRCTC) got listed at Rs 644 on Monday on the BSE, more than doubling investor wealth since its IPO.

Key takeaways from the interview of Mr Sobti, MD & CEO, IndusInd Bank; dated 11th October 2019 with CNBC TV18:

• Loan growth comes in at a multi-year low for IndusInd Bank in 2QFY20 while stressed assets woes added to the bank’s worries. Mr Sobti shared his views and outlook.
• In terms of the pain in the banking sector, he said that compared to last year, net slippages are lower, gross slippages are the function of some technical issues because there are downgrades and then there are upgrades within a few days. The net figure for gross slippages is Rs 1700 mn. The Bank has had handsome recoveries in the stressed groups which were never non-performing assets (NPAs). The Bank is still hopeful that these stressed accounts will not leave any residual cost which hits the profit and loss (P&L).
• He clarified that they have been more than transparent on disclosures as far as real estate exposures are concerned, they have remained steady in terms of percentage. Special mention accounts (SMA) data and the SMA-I data has been provided every quarter and the overdue is just Rs 280 mn of the whole lot.
• In terms of market share, Mr Sobti mentioned that the Bank has gained market share in the vehicle finance area, it has grown 21 percent and in the auto industry, commercial vehicles (CVs) grew around 14 per cent, cars grew 19 per cent, two-wheelers grew 24 per cent. According to him, it’s a very handsome growth in a market which is shrinking.
• Microfinance grew by 32 per cent; the bank has not lost market share anywhere and has received some repayments towards the end of Sep-19 quarter.
• Mr Sobti thinks the underlying fundamentals are sound and the bank will bounce back to the mid-20s, if not better, Q3 onwards in terms of growth rate.
• The total exposure to non-banking financial companies (NBFCs) is around 3.5 per cent.
• Speaking about IndusInd Bank’s exposure to Indiabulls group, he said that exposure was 0.35% of the bank’s exposure which has come down to 0.27%.
  
• Exposure to real estate financers remains steady at 3.8 per cent and has always remained below 4 per cent.
  
• On loan growth, he further mentioned that in Q1 the loan growth was 28 per cent. So, for 1HFY20, the bank is in the mid-20s. In 2QFY20, the bank got some nice and strong repayments. For IndusInd Bank to get back to the mid-20s and beyond, might not require doing unusual sort of a stretch. Mr Sobti thinks IndusInd Bank should be ending the full year at least in the 25 per cent range if not better.
• When asked about the next CEO appointment he mentioned that the next CEO will be appointed sooner than later.

 Consensus Estimate (Source: market screener website)

• The stock price was ₹ 1,272/- as of close price of 15-10-19 and traded at 15x /12x /9x the consensus EPS for FY20E / 21E / 22E EPS of ₹ 84/108/133 respectively.
• Consensus target price of ₹ 1,704/- implies a PE multiple of 13x on FY22E EPS of ₹ 133/-.