IndusInd Bank Limited Q1FY23 Results: Profits up 64%. Should you stay Invested?

IndusInd Bank Limited Q1FY23 results declared: check out its key highlights here.

IndusInd bank, one of the first new generation private banks in India which offers an array of services to its customers has released its results for the Mar-June quarter. The bank showcased strong numbers with a whopping 64% growth on the back of better income growth and a decline in provisions. Strong loan growth also bolstered the topline.

IndusInd Bank Limited Q1FY23 result highlights

Hits

• 😊The profit growth was notably strong, batting at a whopping 64% YoY and 18% QoQ, standing at ₹1,603 crores.
• 😊Despite a strong increase in bond yield, the bank has managed its treasury book well and has reported a securities/FX trading gain of ₹146 crores during Q1FY23.
• 😊Operating profit of the bank was up by 8% YoY and 2% QoQ to ₹3,394 crores, while other income grew by 8% YoY and 1.4% QoQ to ₹1,929 crores.
• 😊As a result of corporate credit growth, the bank’s loan book grew strongly by 18% YoY and 4% QoQ.
• 😊Retail portfolio growth which was backed by vehicle finance, business banking, and credit card segment increased by 13% YoY in Q1FY23. The growth remained subdued n 2 and 3-wheeler space.
• Net Interest Income (NII), a key measure of the bank’s performance, for the quarter increased by 16% YOY to ₹4,125 crores.
• Current Account Saving Account deposits (CASA) showed a growth of 16% YoY, but the CASA ratio of the bank remained stable at 43% QoQ.

Misses

• 🙁 The assets’ (which are the loans, securities and reserves) quality deteriorated marginally. Slippage of the bank increased by a margin of ₹162 crores, with the slippage ratio standing at 3.6% YoY and 3.5% QoQ.
• 🙁 The slippage ratio growth caused the bank’s GNPA ratio to inch up by 8bps QoQ, standing at 2.35%.

Slippage, NPAs and NII: What are they?

For a regular person or company, loans are a liability that they need to pay off. But for banks, there is a twist, the loans are assets. The loans that a bank gives to its customers are assets from which it earns money in form of interest. An increase in the NII shows that the bank has increased the income from interest, which is a good thing.

But what happens when someone does not pay back the loan? That is where NPA and slippages come in. Slippages, in banking parlance, is when a bank’s assets become non-performing asset (NPA) because a borrower has not paid interest for over 90 days. An increase in NPA and slippages is not a good thing for banks as it shows a reduction in the quality of loans they have given to customers.

Valuation and Outlook

IndusInd Bank has reported better performance on most of the counts with the beat on the operating performance front. The growth momentum is picking up, and the liability profile is also shaping up well. The balance sheet position remained strong and the margin remained stable. With the increasing credit system and management’s focus on the PC-5 (Planning Cycle -5) strategy, we believe the loan growth of the bank to remain strong with a focus remaining on building granular liability profile. We maintain our positive view and have a “Buy” rating on the stock. The target price of ₹1,236, is based on 1.6x FY24E ABV. The bank is expected to deliver 1.4% RoA and 13% RoE by FY24E.