Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.1% lower at 17,547. Top gainers in NIFTY50 were COALINDIA (+3.6%), TECHM (+3.6%), and HINDALCO (+2.7%). The top losers were NESTLEIND (-1.5%), HDFC (-1.4%), and ICICIBANK (-1.2 %). The top gaining sectors were MEDIA (+13.6%), REALTY (+8.5%), and METAL (+1.5%) while the top sectoral losers were FINANCIAL SERVICES (-0.9%), BANK (-0.8%), and PRIVATE BANK (-0.7%).

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Excerpts of an interview with Mr. Sumant Kathpalia, MD & CEO – IndusInd bank (INDUSINDBK), aired on CNBC TV18 on 21^st September 2021:

• INDUSINDBK has planned a credit cost of 160-190 bps for FY22E with an additional 60-70 bps contingent provisions for Vodafone-Idea exposure. Will continue to take extra provision. There have been structural positive developments in case of the industry, but INDUSINDBK will wait for any further action from the Vodafone-Idea promoters before revising/lowering their planned provisions.
• Collection efficiency in vehicle finance has been improving every month from the June-21 levels. In August, net collection was 97.5%. The bus segment and 3-wheeler segment are impacted due and require restructuring.
• In the micro finance (MFI) segment, collections have to be looked at state wise. The overall portfolio efficiency is 94% barring states of Kerala, West Bengal, and Orissa that have accessibility issues. MFI will bounce back much stronger in 2HFY22 when covid-19 concerns reduce further.
• In the vehicle finance book, seeing robust growth in car loans- especially used cars and scooters (90-95% of pre-covid), tractors (140% of pre-covid), construction equipment, LCVs (90-95% of pre-covid), and HCV (70%). Vehicle finance disbursements are almost coming to pre-covid levels (95-97%).
• INDUSINDBK has been cautious with growth in MFI segment- specifically in Kerala, West Bengal, and Orissa and overall disbursement is at 70-80% of pre-covid levels.
• On the non-vehicle side the bank is seeing growth coming back in loan against property LAP, MSME, commercial banking, and working capital.
• In 1QFY22 loan book declined QoQ, whereas, management expects 2QFY22E to have some growth, but real growth will come in 2HFY22E.
• FY22E exit growth in advances should be in double digits.
• Within the corporate book, large corporates are seeing public sector spending but private sector capex has not taken off as expected, while working capital growth is robust. On the commercial side, there is deleveraging happening, while MSME is showing robust growth.
• FY22E NIMs should be in the range of 4.15% to 4.25%. NIMs in 1QFY22 were 4.06% due to excess liquidity, and that will continue in 2QFY22E.
• INDUSIND’s PPOP (Pre-provisioning Operating Profit) will continue to be be 5%+.
• GNPA should remain within range of 2.6%-2.7% GNPA, and begin to reduce gradually, NPA should remain in range of 0.75%-0.84%
• Restructuring book will increase in 2QFY22E as some vehicle finance segments need an extension in repayment.

Asset Multiplier comments:

• Vehicle segments of buses and 3 wheelers have been impacted due to lower demand as schools, colleges and many offices are still shut. 3-wheeler drivers depend on the daily income and hence find it difficult to service loans when the requirement of 3-wheelere is lesser. Lending institutions across board are seeing asset quality issues in the vehicle finance space.
• Corporate growth trends remain to be seen as there has been an increased focus on balance sheet strengthening across industries. Higher deleveraging and investing from internal cash flows could lead to lower corporate loan book growth for lenders.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of INDUSINDBK was ₹ 1,143/- as of 22-September-2021.  It traded at 1.9x/1.6x/1.4x the consensus BVPS estimate of ₹ 615/693/804 for FY22E/23E/24E respectively.
• The consensus price target is ₹ 1,139/- which trades at 1.4x the BVPS estimate for FY24E of ₹ 804/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”