Just a word of caution. Report of an analyst on the misgovernance at IndusInd. Nothing really new that is not in public domain, but just to highlight that investing in banking / financial companies is extremely risky and if there is one cockroach, we need to be vary of other cockroaches hidden out of plain sight.
Indusind-Bank-Fiasco-and-the-Sleeping-Sentinels-1.pdf (2.3 MB)
source: https://hemindrahazari.com/
takeaway from the bank’s business update conference call last evening was that a major overhaul maybe underway at IndusInd Bank. This would include ‘tweaks’ at the management level and pivoting the business strategy in a direction such that asset growth is a function of liabilities (and not the other way). One of the elements of the overall plot includes de-focusing on bulk deposits.
Conference call highlights
Business Update
High frequency indicator are close to pre-Covid levels such car sales, et cetera,
manufacturing activity is also improving, though service sector continues to remain affected
due to social distancing norms, rural is going strong on back of above normal monsoon
season and consumption is expected to pick up given salary hikes/ roll back of cuts and
festive season.
Current quarter was marked by building of liquidity position with a) capital raise of
INR33bn (in Sept month),b) robust deposit traction with retail deposits accreting by
INR80bn (best quarterly run-rate), this cumulatively led to lower cost of funds and going
ahead bank expects to initiate deposit rate cuts. Certificate of deposit proportion reduced
to 5% v/s 10% in June and 15% in March. Overall surplus liquidity stood at INR400bn,
which impacted NIMs negatively by 12bps.
Growth traction is witnessed in 2w, car, secured non-vehicle retail assets, CE, while MFI,
CV traction is expected to take time for recovery.
Fees - Core fees saw sharp jump QoQ led by distribution fees, trade remittances. Corporate
fees were pre-dominantly of annuity nature. Distribution and trade remittance run-rate
are back to pre-Covid levels, also helped by recent insurance tie-ups
Bank categorically cite merger with another bank to be purely speculative in nature.
Segmental Update
Vehicle book - collection efficiency stood at 94% in Sept month. Efficiency in high value
segment within CV is comparatively lower, while other segments are almost close to pre-
Covid levels. Overall vehicle disbursements stood at 80% of pre-Covid levels. Demand
traction in tractors, utility vehicles, 2W, car, CE is strong.
Micro-finance book - Collections stood at 91% in Sept and will touch 93% by Oct end.
Initially lockdown in 5 states did impact collections but the impact is waning. Around
80bps of customer haven’t paid any instalment from May onwards. Disbursements have
picked up and were 85% of Sept 2019 in Sept 2020 month.
Other retail assets - constitute 17% of overall book. Overall collection efficiency stood at
90% with LAP around mid-90s and unsecured lower than 90%.
Large corporate - Collection is close to 100%, and bank is focusing on increasing share
of working capital loans v/s earlier approach of term loan financing. 2QFY21 saw pre-
payment of INR19bn which led contraction in the book. Real estate - 2 accounts to the
tune of INR5bn are under stress but given reasonable collateral levels, bank expects
some resolution to be initiated.
Mid-corporate - Collections stood at 95%. Auto ancillaries, Food processing industry are
witnessing some challenges in terms of collections. On the overall portfolio, self-funding
proportion has increased from 59% in 1QFY21 to 71%.Growth in the current quarter was
also helped by ECLGS scheme (under which bank has so far disbursed INR16bn).
Gems & Jewellery - no delinquencies, demand in rough diamond business has picked
up. Bank has low exposure to domestic jewellers
.
Asset Quality
Collection efficiency stood at 95% on total portfolio and bank expects low single digit
restructuring going ahead.
Total provisions’ (including specific/covid) increased from 96% to 134% as a percentage
of GNPLs and is equivalent to 3% of overall loans.
Slippages stood at INR4bn (including SC verdict) and INR6.2bn (excluding SC verdict).
SMA1 and SMA2 stood at 33bps. Proforma GNPL% stood at 2.3%.
Press release
“We have come across certain false reporting / information in the media stating that IndusInd Bank is a subsidiary of Hinduja Bank.
IndusInd Bank denies the said media report and considers it to be malicious, untrue, and baseless.
IndusInd Bank desires to clarify that it is not a subsidiary of any entity. The Bank wishes to further clarify that it is promoted by IndusInd International Holdings Ltd. (IIHL) and its subsidiaries.
IIHL is a Mauritius-based company set up by overseas Indians and no ‘one’ shareholder is in control of IIHL.”
Hi All,
I have been studying Indusind Bank for quite long time, but has not invested in it, as till 2017, it was overvalued most of the time in comparison with peers to some extent. Though valuations were justified at that time, due to good EPS growth, ROE > 15%, and ROA close to or > 1.5%, now things have changed in last 3 years.
I am not able to find reason for pledge of 45% shares by promoter(s). Though the promoter holding in this bank is only 15-16%, but still finding it difficult to understand the reason for pledge.
It would be good if Value Pickr community can help me here.
It seems marginally undervalued stock now, with GNPA < 3%, and though EPS growth could be moderate from here on, current valuations look reasonable to me. Hence this stock is under my watch list now.
Any comments about its promoter pledging and its long term future could help me to understand the business better.
Hi All,
This is further to my previous comment about pledging.
It seems that, there is sufficient information available in public forum on this.
Promoters have pledged the shares to raise debt, as per the news :
Read more at:
Hey, does anyone know if the entire IL&FS exposure of indusind has been written off or if they still have some amount that they have not written off
Earning call highlights i found interesting
MFI
internal review done
external review in 2 weeks
Findings
MFI collection, 93% overall, 98% excluding NPA and restructuring
West Bengal and Kerala collections 95% and 91% of standard book
40% NPA customers paying
restructuring increased by ~100cr
Cautious on MFI growth pending review, will pick up this Quater
Most of the slippages this Quater from MFI
Vehicle finance
disbursements ahead of pre-covid for all categories except 2/3 wheelers
3769cr restructured
restructured collection 87%
Other retail
credit cards spends increasing
secured lending facing Competition
slippage < 1%
Corporate bank
6% growth QoQ
Scarified yield for better rated clients
Growth lead by nbfc and small corporates
lowest slippages 56cr
part of the restructured book expected to be upgraded this quater
One account litigation (not sure which one this is)
Vodafone 3000cr, funded 1000cr, 2000cr non funded
Sold ILFS subsidary to ARC for 240cr cash with upside participation
used recovery contingent provision
gems degrew because of payments, 0 NPA
Deposits
Reducing cost of deposits
CD reduced, 2.2%
Expects growth 18-20% from next year
and credit cost 125 - 150 bps next quater
My view
I feel all the issue of the past are behind the bank
I feel indusind is one of the best ways to play the economic revival (if it happens). Great exposure to smaller corporates, MFI and commercial vehicles. It now has a strong balance sheet and attractive valuations. Resolution of the old corporate accounts can be a tail wind.
Indusind lends to highly cyclic businesses that they have a strong niche and domain understanding in. Paying 5x PB in 2018 for it was insane. That was buying at the cyclic top in terms of profits and valuations. Every quality (aka momentum) MF from motilal to axis had it. Now it is available for a steal with most of the previous issues resolved and great tailwinds going forward. Despite challenge after challenge the last 5 years profits have not grown but there is no great fall either. I am very bullish as there is limited downside and great upside, if one is ready to live with volatility.
Possible issues:
Disc invested
Indusind has 2000cr exposure to the group and 1000cr to SPV’s (all unsecured 
) that is long written off.
This would be a major positive if it happens. The management will probably immediately put it into provisions and this will provide a good buffer over the next few years
Clean chit from the external auditor, total loss was ~20cr but the stock corrected from 1200 to 900 because of this.
Russia Ukraine war might affect the gems lending business a little but at 10PE 2023, massive provision buffers, possible resolution in written off ILFS accounts and so much excess balance sheet liquidity i strongly feel this and axis are the best ways to play a cyclical economic recovery, if it happens
Indusind Bank is again in News due to some dated transactions between 2011-2014 being investigated and FIR being filed in Chennai.
Is this a major concern?
Though FII have been selling the stock, Promoter holding is stable/marginally reduced, and DII holding is increasing. This is as per screener data.
Also Bank looks reasonably valued as compared to its past.
High Promoter pledging and negative news is the concern.
I would like to know view of others on this.
Disc: Invested.
Indusind Bank Q2’s net profit: 1600 cr
Q3 preliminary reported (unaudited) data :
Based on the current rate expected annual profit is 6400 cr without growth and improving asset quality considering.
The current market cap is ~94,000 (1200 stock price). Is it not trading the company with a cheap valuation of 14.7 P/E for a minimum of 15% growth?
IndusInd Bank Q3 concall -
Advances-2.72 lakh cr, up 19 pc yoy
Deposits-3.25 lakh cr, up 14 pc yoy
CASA-1.36 lakh cr, up 14 pc yoy (encouraging)
NII-4495 cr, up 18 pc yoy
Fee Income- 2077 cr, up 11 pc yoy
Operating Profit - 3686 cr, up 11 pc yoy
NP- 1964 cr, up 58 pc yoy
NIMs-4.27 pc
RoA-1.87 pc
RoE-15.23 pc
Cost/Income-43.91,down 232 bps
Gross NPAs-2.06 pc,down 42 bps
Net NPAs-0.62 pc,down 9 bps
Restructured assets -1.25pc,down 205 bps
Loan book composition-
Large corporates-27 pc
Mid Corporates-16 pc
Small Corporates-4 pc
Consumer bank-53 pc
Consumer banking breakdown - Vehicle Finance - 26 pc ( Bank’s Niche )
Micro Finance - 11 pc ( MF percentage is high as Bharat Finance was acquired by bank 5 yrs ago )
Non Vehicle Finance - 16 pc ( includes LAP,Credit cards, Business banking, Personal Loans etc )
Vehicle Finance book at 71k cr, up 18 pc yoy
Micro Finance book at 29k cr, up 8 pc yoy ( avg ticket size of Rs 30k )
Corporate Loan book at 1.27 lakh cr, up 20 pc yoy
Yield on Assets- 8.65 pc
Yield on Advances - 11.51 pc ( corporate yield at 8.2 pc, retail yield at 14.3 pc…due contribution from MFI book)
Cost of Deposits - 5.10 pc
Cost of Funds - 4.41 pc
NIMs - 4.27 pc
Gross slippages in Q3-1467 cr (which is about 2 pc annualised, fairly ok)
Non Vehicle Finance book at 44k cr ( Credit card, LAP disbursement up 46 pc, 10 pc yoy )
Total Provisions at 130 pc of Gross NPAs
Total Branches at 2384 vs 2103 yoy
Bharat Finance branches at 792 vs 825 yoy
Micro finance lending picking up pace wen Dec 22
Started disbursing Home loans for the first time in Q3. Disbursed 200 cr during the Qtr
Went live on Income Tax portal in Q3
Share of top 20 customers in deposits down at 15 pc vs 17 pc, qoq pointing to increased granualrisation of deposit base
Aim to close the year at 2450-2500 branches
Mobile app user base up 26 pc yoy
Hired 1800 employees in Q3 while maintaining healthy cost/income ratio
SMA1 and SMA2 books at 8bps and 24bps ( very healthy levels )
CRAR at 18.1 pc ( including 9M profits )
Guiding for a loan growth of 20-22 pc in Q4
Restructured book trending down QoQ at rapid rates
Bulk of Corporate book is floating book. Bank reprices it every Qtr
Exposure to Idea-Vodafone at 1700 cr. 900 cr out of this has already been provided for
Carrying surplus liquidity to the tune of 45k cr. Aprox 25k cr out of this is held as G-Secs
Aim to keep carrying 20-25k surplus at all times as a matter of prudence
Current yield on newly introduced housing loans at 8.95 pc
Disc : Holding, Invested
Management’s remarks on Q4 results
Encouraging set of results !!!
Disc : holding, biased
IndusInd Bank q4 concall highlights -
Loan book on 31 Mar 23 at 2.89 vs 2.39 lakh cr
Retail : Corporate + commercial at 54:46, unchanged yoy
Loan book break down -
Vehicle Finance at 26 pc of book
Micro Finance at 11 pc of book
Other Retail at 17 pc of book
Large corporates @ 26 pc of book
Mid Corporates @ 16 pc of book
Small Corporates @ 5 pc of book
CV book at 75k cr
Microfin book at 32k cr ( second largest in India )
Deposits - 3.36 lakh cr
CASA at 1.34 vs 1.25 lakh cr ( at 40 pc vs 43 pc )
Borrowings at 11 pc vs 12 pc
Profitability-
NIMs-4.28 vs 4.20
Cost/Income- 44.9 vs 42.6
Fee Inc/Total assets- 1.9 vs 1.9 pc
RoA- 1.9 vs 1.51 pc
RoE- 15.2 vs 11.9 pc
Asset Quality-
GNPAs at 5826 cr@ 1.98 vs 2.06 pc
NNPAs at 1715 cr@ 0.59 vs 0.62 pc
Restructured book-0.85 vs 1.25 pc
Q4 Slippages-1600 cr
PCR+other provisions at 126 pc of GNPAs
Interesting Data point -
Top 20 deposits- 16 pc vs 23 pc three yrs back (must reduce further)
Distribution network -
Branches - 2606 vs 2265
BFIL branches - 3303 vs 2795
Vehicle Finance Outlets - 582 vs 816
ATMs - 2878 vs 2767
Q4 highlights -
Deposit growth at 15 pc yoy
NII at 4669 cr, up 17 pc yoy
Fees Income at 2154 cr, up 13 pc yoy
Op Profits at 3758 cr, up 11 pc yoy
NP - 2043 cr, up 46 pc yoy (due reduced provisions)
Avg Micro Finance loan value at 32k/customer
Low growth in Operating profits as the bank is trying to push more towards retail loans where initial cost of acquisition is high
Overall loan book growth driven by retail, small and mid corporates
Mid and small corporates, CV , Microfinance to be growth drivers going fwd
SMA 1 +2 book at 0.32pc of total book
Intend to make counter cyclical provisions ahead of stress formation
Over last 3 yrs, 73 pc of incremental deposits are retail !!!
Bank is Mkt leader in Gems and Jewellery loans too
Affluent banking growing at 25 pc CAGR
NRI deposit mkt share at 3.16 vs 1.6 pc in 2020
Aim to ramp up LAPs, affluent and affordable housing loans in a big way in next 3-4 yrs
Aim to double profits in next 3 yrs with RoA of 1.9-2.2 pc
Credit cost guidance for next 3 yrs - 1.1 to 1.3 pc / year
Believe that industry credit growth shall moderate in next 2-3 qtrs from elevated current levels
Bank aims to clock an avg of 18-23 pc credit growth for next 3 yrs
Expect NIMs in the range of 4.25-4.35 pc for next 3 yrs
Barring any accidents, macro economic slowdowns … looks like a 3X in 3 yrs kind of opportunity - due expected profitability jump by 2X, rest of the gains from re-rating
Disc - Holding, Biased
Not an investment advice
Does anyone have any idea when the Indusind final dividend of Rs. 14 per share announced on 24/04/23 will be credited? Or have I missed it in my accounts?
