IndusInd Bank

Further Appreciation In Price Unlikely As Valuations At Par With Top-Ranking Banks

 

 

INDUSIND Bank has been an outperformer in the current rally, which started in March 2009. Its stock has risen 391% since March 2009 compared to the 160% and 96% gains registered by CNX Bank and Nifty, respectively. Even in the last month-and-a-half, when the broader indices stagnated, IndusInd Bank's stock gained 14%. 

   The surge in the stock price does not come as a surprise, as the bank has been growing at a fast clip since the last financial year. For instance, its profit grew by 123% in FY09. It has been on a high growth trajectory even in the current financial year. Its net profit rose 211% in the six months ending September 2009.

This may be from a lower base, but still it is a creditable feat given the economic scenario marked by the lowest credit growth in a decade. At the end of FY08, the bank's current account and savings account (CASA) ratio stood slipped to 16%. As a result, it recorded a net interest margin (NIM) of a mere 1.7% in FY08. 

   The bank chalked out a plan to improve its share of CASA deposits to reduce its cost of funds. It was able to improve CASA's share to 21% while NIM climbed to 2.9% in the September 2009 quarter. Similarly, its return on assets (RoA) improved to 1.1% in September 2009 quarter from 0.6% a year ago. 

   The stock market has duly rewarded the stock, as is evident from the rebound in IndusInd's stock price. The stock is trading at 2.8 times its book value. Top private banks such as HDFC Bank, ICICI Bank, Axis Bank and Yes Bank are trading at an average 3.3 times their book value. The stock appears to be reasonably priced. However, the chances of further appreciation seem to be limited as valuations are at par with the best banks. Moreover, there is a risk that if the stock market slides, IndusInd Bank's stock could fall sharply than the market — similar to the way it outperformed the market. Investors may be better off booking profits at current levels.