IndusInd Bank-Quarterly Result Update

Sector Outlook: Positive 

In the second quarter of FY24, IndusInd Bank’s financial performance showed positive trends. Net Interest Income increased to Rs. 5,077 crores, growing 4.3% from the previous quarter and 18.0% compared to the same quarter last year. Pre-provision operating profit (PPOP) reached Rs. 3,909 crores, marking a 2.0% increase quarter-on-quarter and a 10.3% increase year-on-year. Provisions decreased to Rs. 974 crores in Q2FY24, down from Rs. 991 crores in the previous quarter and Rs. 1,141 crores in the same quarter last year. The bank reported a quarterly net profit of Rs. 2,202 crores, aligning with market expectations. The bank maintained a stable Net Interest Margin (NIM) at 4.3% in Q2FY24 and improved its Capital Adequacy Ratio to 18.21%. Gross Deposits and Gross Advances exhibited healthy growth rates, with CASA declining to 39.0% in Q2FY24. Overall, the bank demonstrated positive financial performance with growth in key areas and prudent risk management.

Key Concall Highlights

• IndusInd Bank is doing well in terms of lending, especially in the retail sector, where they saw a significant 21% year-on-year growth, higher than the industry average. 
• This growth came from areas like vehicle loans and microfinance, and they are also performing well in other consumer product segments. 
• Their vehicle financing business is growing, particularly for cars and utility vehicles. However, growth has been slower for tractors, construction equipment, and two-wheelers. The bank is also focusing on microfinance, with improved collection efficiency and substantial loan disbursements. 
• Their gold and jewellery business faced challenges due to global economic issues affecting diamond demand, but they managed the risks well. 
• IndusInd Bank is also concentrating on lending to small and medium-sized enterprises (SMEs) and has experienced substantial growth in this segment. They believe there’s more potential in SME lending. 
• The bank emphasises a balanced approach between secured and unsecured loans and has been successful in attracting retail deposits. Additionally, they’ve seen growth in affluent and NRI deposits. 
• While their asset quality remained healthy, there was a slight increase in corporate loan issues in the second quarter, but they have provisions in place to address this.

Valuation and Outlook

IndusInd Bank’s performance in Q2FY24 was steady, with no major ups or downs. Unlike many other banks facing a decrease in Net Interest Margins (NIMs), IndusInd Bank managed to keep its NIMs stable. This was possible because they focused on attracting small deposits, which helped them keep their borrowing costs low. They also did well in lending for vehicles and microfinance, which boosted their profits. The bank maintained the quality of its assets in Q2FY24, mainly because they gave loans to customers with good credit ratings and had sufficient collateral. While their Q2FY24 results were decent, they expect better performance in vehicle loans during the festive season, which should improve their returns in the coming quarters. The bank is also investing in digital capabilities and has seen strong growth in digital banking, with over 95% of deposits and retail loans being managed digitally. However, overall, their performance is in line with other top banks, and their valuation in the market is similar. So, we need to keep an eye on their future plans to see if this valuation is justified.

Key Takeaways

• With festive demand seeing an uptick evidenced from strong auto numbers and proactive supply measures announced by the government, there is enough room for the bank’s business to see healthy growth in the medium term.
• The bank has given NIM guidance for FY24 in the range of 4.2-4.3% and has enough levers to absorb the increase in cost of deposits.
• With the competitive intensity seen in acquiring new deposits, the bank came out with double-digit solid retail deposit growth in Q2FY24.