"IndusInd Bank reported numbers much better than expected. Net Interest Income (NII) for the quarter stood at Rs.577.8 crore compared to Rs.430.6 crore during the same quarter last year. PAT for the quarter stood at Rs.267.3 crore compared to Rs.205.9 crore last year and Rs.250.2 crore during Q2FY'13.
Net Interest Income growth much higher than expectation: IndusInd Bank surprised with higher Net Interest Income at Rs.577.8 crore. The NIM for the quarter stood at 3.46 per cent (an increase of 21 bps q-o-q). This trend is expected to continue going forward also.
Strong growth in Other Income component as well: The other income component registered a growth of 34 per cent y-o-y. This was led by strong growth in the core fee income component at Rs.329.3 crore.
One-off increase in provisions: The company has provided for the DCHL account. Therefore, the provisions have increased and stood at Rs.78.7 crore compared to Rs.49.07 crore during Q2FY'13. The asset quality continues to be robust with gross NPAs at 0.99 per cent(1.03 per cent in September quarter) and net NPAs at 0.30 per cent (0.29 per cent in September quarter). The increase in provisions has offset the increase in Net Interest Income.
Expansion strategy on track: IndusInd Bank would continue to expand as per the planned phase, the target is to touch a figure of 500 branches by March 2013. The present figure stands at 461. Despite this, the Cost/Income ratio has improved to 49.4 per cent compared to 49.8 per cent during the previous quarter.
Valuation & Recommendation: We expect IndusInd Bank to post a net profit of Rs.1044.1 crore on Net Interest Income of Rs.2230 crore in FY'13E. We expect the Bank to clock a net profit of Rs.1340 crore on Net Interest Income of Rs.2862 crore for FY'14E. This translates into an EPS of Rs.25.7 for FY'14E. We continue to value the stock at 3x FY'14E adj. book value (of Rs.161.5) to arrive at a price target of Rs.485 over the next 6 months. Buy the stock," says Nirmal Bang research report.
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