IndusInd Bank

IndusInd Bank's results for the June 2010 quarter did not surprise the markets. This is largely due to high expectations because of robust past perbank by market value has been churning net profit growth of over 50 per cent for the last 10 quarters. In the June 2010 quarter, this fell a little to 37 per cent.

However, net interest margins (NIMs) rose to around 3.3 per cent, one of the best in the bank's history. Besides profitability, efficiency and productivity parameters improved.

Growing fast

Buoyed by demand from corporate and consumer segments, advances have grown 22 per cent on an average during the last five years. The bank has managed to lend more of late, with advances growing over 30 per cent in 200910; it continued the trend in the June quarter.

Consumer loans have gathered steam with segments like vehicle loans growing faster. Consequently, the share of corporate loans fell sequentially from 60 per cent to 58 per cent of total advances. The management expects the bank's credit growth to be 25-30 per cent this financial year.

Besides credit off-take, NIMs improved. Though yields on advances cooled from 13.4 per cent a year ago to about 12.2 per cent, NIMs rose from 2.6 per cent to 3.3 per cent, as cost of deposits slid from 7.7 per cent to 6per cent.

Besides, better management of yields and cost of deposits, NIMs got a boost from low-cost deposits — the share of current and savings account deposits improved to 24.3 per cent, up 60 basis points sequentially and 400 basis points since a year ago.

Network expansion over the last one year has been robust, helping the bank garner low-cost deposits; the bank's branch network increased to 225 in the June quarter, a jump of 25 per cent in the last one year. The bank intends to add 115 branches in the financial year, which should improve margins further.

Outlook

Together with an increase in the loan book, the bank's asset quality has been improving. Indicatively, net non-performing loans (NNPL) improved from 1per cent in the June 2009 quarter to 0.4 per cent in the June 2010 quarter. In line with this, the provision coverage improved from a poor 31 per cent last year to the central bank-mandated 70 per cent.

NNPLs from the consumer segment were stable, while the corporate segment saw some deterioration. However, most corporate bad loans were provided for, which is a positive.

The bank is adequately capitalised, with capital adequacy ratio at 13.7 per cent as of June 2010 quarter, and the management is looking to raise another Rs 1,000 crore Tier-I capital, either through a qualified institutional placement, a global depositary receipt issue or a preferential issue, by December 2010.

This issue is likely to dilute equity capital by 8-10 per cent. Meanwhile, due to improving fundamentals and the bank's ability to deliver robust numbers, the stock has run up from around Rs 80 in July 2009 to Rs 214.90.

At this level, the bank is trading around three times estimated 2010-11 price-to-book value, which captures near-term growth expectations. Investors with a long-term perspective can consider the stock on dips.