IndusInd Bank Investment Guide: Shining Star Series.

IndusInd Bank Investment Guide: Shining Star Series.

CMPRs 1,542/-
Target Price Rs 1,950/-
Upside %26.50%
Investment Horizon 1 year

IndusInd Bank, founded in 1994 by the Hinduja Group with the help of Indian people living in other countries, is a major bank in India. It provides a wide range of banking services to around 38 million customers, including individuals, big companies, government offices, and public organisations. 

The bank has a big network with 2,728 branches and 2,939 ATMs across India, reaching 153,000 villages, and also has offices in London, Dubai, and Abu Dhabi to serve people globally. It’s known for its varied services like small loans, personal and business vehicle loans, credit cards, and loans for small and medium-sized businesses.

 IndusInd Bank focuses on using digital technology to make banking easier and more accessible for everyone, making it a popular choice among customers in India’s fast-changing financial market.

Why to invest in IndusInd Bank?

Strong Positioning Due to Healthy Capitalization and Prudent Risk Management

IndusInd Bank is doing really well in terms of its financial health, with its key safety measures showing strong numbers as of the end of December 2023. 

The bank’s main backers are ready to put in more money (Rs. 11,000 crores) to own a bigger share, up to 26%, showing they believe in the bank’s stability and growth. 

IndusInd is lending more to businesses with good credit ratings, which makes its investments safer. It has also done a great job in bringing in customer deposits, especially in the last quarter, adding Rs. 8,200 crores, thanks to effective marketing. 

The bank has plenty of cash on hand, more than required by regulations, allowing it to lend confidently in areas like car loans and small loans without needing more money for about two years. 

While other banks have seen their safety buffers shrink, IndusInd has kept its above the required level, highlighting its smart risk management and strong position in the banking market.

Stable Margin Profile Amidst Elevated Cost of Funds

IndusInd Bank has managed to keep its profit margins steady even though it costs more to borrow money now. This shows the bank is good at handling changes in interest rates and where it gets its money from. 

Unlike other banks, which saw their margins get a bit worse recently, IndusInd actually did a bit better, thanks to focusing on lending in areas where they make more money, like loans for businesses, cars, small finance, and personal loans. 

These areas have helped the bank keep making good money because they charge higher interest rates compared to other kinds of loans. IndusInd Bank stands out because it cleverly chooses where to lend money, like car loans which do well when the economy is doing well, and small finance loans that charge higher interest rates. 

This strategy helps the bank keep up its profits and shows it knows how to manage risks and make the most out of its lending practices.

Well-diversified Loan Book Encompassing a Range of Consumer and Corporate Products

IndusInd Bank is turning heads as a promising investment choice thanks to its varied loan services and smart growth moves. The bank is doing well in managing risks and  growing steadily, with impressive gains in its retail and microfinance loans leading to a 20% annual and 5% quarterly increase in its loan business. 

The standout performer is the vehicle finance section, which is hitting record numbers and showing the bank’s ability to adapt and grab opportunities. Also, its credit card and home loan businesses are growing fast, highlighting its knack for tapping into new market chances while keeping riskier loans in check. 

IndusInd Bank is also paying special attention to microfinance and corporate banking, adding top-quality corporate clients to its portfolio. With vehicle loans jumping by 15% yearly and microfinance growing by 20%, plus a drop in loan losses and a high loan repayment rate, the bank shows it’s on top of managing risks and is set for continued success.

Stable Asset Quality with Conservative Provisioning

IndusInd Bank is showing solid performance in managing its loans and protecting itself against possible losses. The bank’s bad loan percentages have stayed the same as the last quarter, with a low rate of loans not being paid back. 

This shows they’re cautious and smart about setting money aside in case some loans go bad. Even though they had to deal with some issues, especially in the vehicle loan and microfinance areas, they’re getting better at recovering loans and minimising losses. 

The bank also plans to keep an extra safety net by setting aside more money, ensuring it can handle future challenges smoothly. Despite some ups and downs in certain loan areas, IndusInd Bank is doing a good job keeping its finances stable and is prepared for whatever comes its way, aiming for steady growth and stability in a changing market.

Key Operational Metrics Remain Strong Amid Elevated Expenses

IndusInd Bank is doing really well despite spending more on its operations. Its earnings from interest on loans grew by 18% over the year and 4% over the last quarter because of smart management of its lending rates. 

The bank also made more money from other services, making up 17% of its total earnings. But, it had to deal with higher costs, which might continue into the next year. Even so, the bank made a solid profit, growing by 17% over the year and 5% from the last quarter, with good returns on both the assets and equity it owns. 

IndusInd is also expanding, adding new branches and focusing on rich customers and those living outside India, which is helping grow its deposits and managed assets. 

Despite higher costs from hiring more people and improving its services and technology, the bank is still making good money and plans to keep improving its operations and services, especially for small businesses and digital banking, aiming for even better financial health in the future.

Valuation & Outlook

India’s economy is booming with an 8.4% growth rate, and IndusInd Bank is right in the thick of this growth, making it a promising choice for investors. The bank might get a big boost, with its main investors planning to increase their shareholding with a whopping Rs. 11,000 crore investment if the Reserve Bank of India gives the green light. 

This move signals strong confidence in the bank’s future. With interest rates expected to drop in the second half of the next financial year, IndusInd Bank, which has a lot of loans that earn more when rates fall, stands to gain significantly. 

This situation, combined with its current low price compared to future earnings and strong growth projections, makes IndusInd Bank a standout investment. Its cost efficiency is expected to improve, making its operations even more profitable. Considering its value and the potential for a 26.5% increase in its share price, it’s an attractive pick for anyone looking to benefit from India’s economic expansion.

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