Cautious on MSME Portfolio – Indusind Bank

Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,497 (-0.9%). Among the sectoral indices, PSU Bank (+3.4%) was the only gainer. Pharma (-2.0%), Auto (-0.9%), and Financial Services (-0.8%) closed in the red. SBI Life (+2.7%), BPCL (+1.6%), and ONGC (+1.4%) were the top gainers. Tata Consumer (-4.3%), CIPLA (-3.1%), and Dr Reddy (-2.1%) were among the top losers.

Excerpts from an interview of Mr. Sumant Kathpalia, MD & CEO, Indusind Bank with CNBC-TV18 dated 03^rd May 2021:

• Speaking on the retail slippages, Mr Kathpalia said the increases in slippages were led by the commercial vehicle segment.
• The collections in the month of April were 1% lower than the expected collections.
• Speaking about MSME portfolio, he said the portfolio is worth Rs 110bn. These are loans given to small entrepreneurs for working capital requirements.
• The loans given to entrepreneurs are secured in nature. The slippages in Q4FY21 were 3.5-4% and provisions are made.
• The bank has given Rs 14bn into ECLGS scheme of SME portfolio. The commercial vehicle side of the book is doing well for the bank.
• Transportation segment portfolio on the retail side is still lagging.
• Speaking about vehicle finance, he said the disbursements had a growth of 30% YoY and in Commercial vehicles, the growth was 40% YoY.
• The bank has a 12-14% market share in these segments and the bank will continue to maintain its high market share.
• Speaking about the current environment, he said there is demand from large corporates and mid corporates. Going ahead the bank will stay cautious on its MSME portfolio.
• In 4QFY21, the bank reported flat Net Interest Income (NII). Mr. Kathpalia said it was an outcome of low loan growth (3% YoY reported).

Asset Multiplier comments:

• Several banks have a cautious stance on the MSME segment as lockdowns due to the 2nd wave of Covid-19 might impact small businesses.
• In 4QFY21, Indusind Bank reported 30% YoY and 8% QoQ growth in vehicle disbursements. Certain state specific lockdowns might lead to decline in monthly auto sales which may impact the vehicle finance segment in 1HFY22E.

Consensus Estimate: (Source: Market screener website and Investing.com websites)

• The closing price of Indusind Bank was ₹ 912 as of 04-May-2021.  It traded at 1.4x/1.3 x the consensus BV per share estimate of ₹ 614/691 for FY22E/FY23E respectively.
• The consensus average target price is ₹ 1,046/- which implies a PB multiple of 1.5x on FY23E BVPS of 691/-.

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