IndusInd Bank

 

 

Stock Up 59% Since '09, Price To Mirror Its Fin Performance In Quarters Ahead

 

INDUSIND Bank recently raised Rs 420 crore through tier-II bonds. This is done to boost its capital adequacy ratio (CAR), which stood at 13.8% at the end of December '09 quarter.

   The bank's CAR is more than minimum 9% stipulated by the Reserve Bank of India (RBI). But since it is growing at a high rate, it would require additional capital to maintain its CAR. The bank grew its loan book by 33% year-on-year in the December '09 quarter, when growth in aggregate credit in the banking industry stood at only 13%.

   On the similar lines, the bank more than doubled its profit in the first nine months of the current fiscal. Given such a high rate of growth, it has raised capital through tier-II bonds. It must be noted that the bank raised capital through the qualified institutional placement (QIP) route in August last year. A spate of capital raising and a high growth also hint that the bank is expected to grow at higher than industry rates even, going forward.

   In fact, the bank can be called as the most improved bank in the past two years. For instance, its net interest margin (NIM) improved by 113 basis in the December '09 quarter, as it stood at 2.94%. It has leaped into the league of top India banks, which boast of NIM around 3%. Similarly, the bank has posted a significant improvement in its non-performing assets (NPAs). Gross NPAs formed more than 3% of gross advances at the end of March 2008. This has come down to a mere 1.3% of gross advances by December 2009. Clearly, the bank has done a turnaround.

   This gets reflected in the way the stock has performed, of late. Since the start of October 2009, broadbased indices like Nifty and Sensex have remained, by and large, flat. The Nifty has jumped by 6% since October 1, 2009. In the same time-frame, Bank Nifty — the benchmark index for banking stocks — moved up by 10%. While the broad indices didn't show great exuberance, IndusInd Bank's stock moved up by 59% in the similar time-frame. This shows that the stock market has richly rewarded the shareholders for the bank's performance. And, if the bank maintains its growth rate, the stock price will continue to rise in line with its financial performance.