Analyst Report : IndusInd Bank Limited (Sell, Estimated Price :Rs. 310/- )

Introduction

IndusInd Bank Limited is a Mumbai based Indian new generation bank, established in 1994. The bank offers commercial, transactional and electronic banking products and services. IndusInd Bank was inaugurated in April 1994 by then Union Finance Minister Manmohan Singh. Indusind Bank is the first among the new-generation private banks in India.

The bank started its operations with a capital amount of Rs. 1 billion among which Rs. 600 million was donated by the Indian Residents and Rs. 400 million was raised by the Non-Resident Indians. The bank has specialized in retail banking services and continuously upgrades its support systems by introducing newer technologies. It is also working on expanding its network of branches all across the country along with meeting the global benchmark. According to the bank, its name is derived from the rich and vivid Indus Valley Civilization.

IndusInd Bank has 638 branches, and 1238 ATMs spread across 392 geographic locations of the country as on 30 September 2013. It also has a representative office in London and another in Dubai. Mumbai has the maximum number of bank branches followed by New Delhi and Chennai. The bank has also proposed to double the branches count to 1200 by March 2017.

 Shareholding Pattern

	Category	No. of shares held	% of shareholding
A	Promoters’ holding	7,98,99,984	15.21
B	Non-Promoters’ holding
	(i) Institutional Investors
	a. Mutual Funds and UTI	2,54,17,071	4.84
	b. Banks, Financial Institutions, Insurance Companies (Central	1,37,94,817	2.62
	/ State Gov. Institutions / Non-government Institutions)
	c. FIIs	22,74,17,505	43.28
	Sub Total	26,66,29,393	50.74
	(ii) Global Depository Receipts	6,46,82,364	12.31
	(iii) Others
	a. Private Corporate Bodies	6,95,03,868	13.23
	b. Indian Public	3,73,39,566	7.11
	c. NRIs/OCBs	55,79,030	1.06
	d. Clearing Members	14,75,820	0.28
	e. Trusts	3,36,459	0.06
	Sub Total	11,42,34,743	21.74
	GRAND TOTAL	52,54,46,484	100

Branch Network

The Bank opened 102 new branches and 228 ATMs during the year 2013-14. As on March 31, 2014, the Bank had a total network of 602 branches spread across 404 geographical locations and 1,110 ATMs inclusive of 613 off-site ATMs. The Bank has presence in 31 States and Union Territories. In addition, the Bank also has representative offices in London and Dubai.

Future Plans

The Bank kept up its focus on deepening as well as strengthening the fee-based income streams, resulting in a smart growth in non-interest income. Going forward, the Bank plans to upscale the growth momentum through further enhancements in diverse revenue streams such as Foreign Exchange business, Investment Banking, structured Trade and Treasury products, distribution of third party products like Mutual Funds and Insurance, international remittances, Bullion operations and Transaction Banking activities, including the Depository business and the Commodity Market business.

Financials

Interest earned grew at a rate of 18.19% in the financial year ending March 2014 at Rs. 8253.53 crores. Interest expended forms 64.98% of Interest earned at Rs. 5362.82 crores as compared to 68.03% for the previous year. Operating expenses constitute 21.54% of Total Income at Rs. 2185.28 crores as compared to 21.04% for the previous year. Provisions and contingencies form 11.71% of Total Income as compared to 9.32% for the previous year. Net Profit forms 13.88% of Total Income at Rs. 1408.02 crores as compared to 12.71% previous year. This show that bank’s expenses are increases with a decrease in interest earned. Hence bank’s show a relatively decrease in performance as compared to the previous year.

 

Rs in crores	Mar '10	Mar'11	Mar'12	Mar '13	Mar ' 14
Income
Interest earned	2706.99	3589.36	5359.19	6983.23	8253.53
Other Income	553.48	713.66	1011.78	1362.96	1890.53
Total Income	3260.47	4303.02	6370.98	8346.19	10144.06
Expenditure
Interest expended	1820.58	2212.86	3654.95	4750.37	5362.82
Operating Expenses	736	1008.48	1343	1756.36	2185.28
Provisions & Contingencies	353.59	504.35	570.42	778.28	1187.94
Total Expenses	2910.17	3725.69	5568.36	7285.01	8736.04
Net Profit for the Year	350.31	577.33	802.61	1061.18	1408.02
Net Profit for the Year	350.31	577.33	802.61	1061.18	1408.02
Profit brought forward	247	391.51	714.36	1187.59	1790.93
Total	597.31	968.84	1516.97	2248.77	3198.95
Appropriations
Transfer to Statutory Reserves	87.58	144.33	200.65	265.3	352.01
Transfer to Other Reserves	32.06	1.79	9.15	8.77	8.25
Proposed Dividend/Transfer to Govt	73.88	93.23	102.89	157.09	184.08
Corporate Dividend Tax	12.27	15.12	16.69	26.69	31.28
Balance c/f to Balance Sheet	391.51	714.36	1187.59	1790.93	2623.33
Total	597.31	968.84	1516.97	2248.77	3198.95

For the financial year ending March 2014, Total Liabilities for Indusind bank stand at Rs. 87025.93 crores as compared to Rs. 73306.52 crores previous year. Deposits comprise 69.52% of Total Liabilities at Rs. 60502.28 crores as compared to 73.82% last year. Borrowings constitute 16.96% of Total Liabilities at Rs. 14761.96 crores as compared to 12.90% last year. On the asset side, Advances comprise 63.32% of Total Assets at Rs. 55101.84 crores as compared to 60.46% previous year. Investments are 24.78% of Total Assets at Rs. 21562.95 crores vs. 26.81% last year. Cash and Balances with RBI comprise 5.07% of Total Assets at Rs. 4413.92 crores as compared to 4.43% previous year. Balance with bank comprises of 2.71% of totall assets at Rs 2355.53 crores compared to 4.91% previous year. From this we can say that either company is making planning to invest somewhere or it is making losses as compared to previous year.

Rs in crores	2010	2011	2012	2013	2014
CAPITAL AND LIABILITIES
Capital	410.65	465.97	467.7	522.87	525.64
Reserves & Surplus	1984.39	3576.27	4263.06	7096.67	8506.3
Employee Stock Options Outstanding	2.2	7.98	10.95	10.71	11.02
Deposits	26710.17	34365.37	42361.55	54116.72	60502.28
Borrowings	4934.29	5525.42	8682.01	9459.56	14761.96
Other Liabilities and Provisions	1327.83	1694.83	1810.8	2099.99	2718.73
TOTAL	35369.52	45635.84	57596.07	73306.52	87025.93
ASSETS
Cash and Balances with Reserve Bank of India	2099.18	2456.04	2903.58	3249.84	4413.92
Balance with banks and money at call & short notice	504	1568.56	2636.05	3598.89	2355.53
Investments	10401.84	13550.81	14571.95	19654.17	21562.95
Advances	20550.59	26165.65	35063.95	44320.61	55101.84
Fixed Assets	644.83	596.46	656.8	756.14	1016.45
Other Assets	1169.08	1298.32	1763.75	1726.87	2575.24
TOTAL	35369.52	45635.84	57596.07	73306.52	87025.93

Liquid asset/ Deposit ratio of the company is going down as company is reducing its cash in hand balance and putting in investment and advances. Its NIM is at a good pace at 4.11%. NPA of the company is 0.33% which is much lower than the average NPA of the banking sector.

	2010	2011	2012	2013	2014
Efficiency ratio	33.42%	35.16%	30.03%	30.37%	33.25%
Overhead ratio	3.08%	3.32%	3.32%	3.46%	3.88%
NIM		3.90%	3.81%	3.93%	4.11%
Return on average asset	0.99%	1.27%	1.39%	1.45%	1.62%
return on earning asset	1.07%	1.36%	1.49%	1.53%	1.73%
Noninterest  income to average asset	1.56%	1.56%	1.76%	1.86%	2.17%
Loan/Deposits	76.94%	76.14%	82.77%	81.90%	91.07%
Liquid Asset/ Deposit	1.89%	4.56%	6.22%	6.65%	3.89%
Common Equity/Earning asset	7.34%	9.49%	8.75%	10.99%	11.07%
Interest earned/Earning asset		11.41%	12.98%	13.36%	12.21%

It is our assumption that things are going to tighten down the line. We have used Discounted Cash Flow method to arrive at valuation for Indusind bank. Our estimated price is coming out to be around Rs. 310. The Current Market Price of Indusind bank is Rs. 928.65

Projected Balance Sheet for Next 5 years

	2015	2016	2017	2018	2019
CAPITAL AND LIABILITIES
Capital	525.64	525.64	525.64	525.64	525.64
Reserves & Surplus	9937.57	11680.76	13806.33	16400.75	19570.08
Employee Stock Options Outstanding	13.42	16.37	19.98	24.4	29.83
Deposits	74224.2	91058.25	111710.3	137046.2	168128.2
Borrowings	17978.95	21922.85	26758.49	32688.03	39959.52
Other Liabilities and Provisions	3311.21	4037.56	4928.15	6020.2	7359.4
TOTAL	105991	129241.4	157748.8	192705.2	235572.7
ASSETS
Cash and Balances with Reserve Bank of India	5375.82	6555.07	8000.96	9773.93	11948.15
Balance with banks and money at call & short notice	2868.86	3498.18	4269.79	5215.95	6376.24
Investments	26262.04	32022.94	39086.4	47747.75	58369.3
Advances	67109.87	81831.25	99881.17	122014.3	149156.6
Fixed Assets	1237.96	1509.52	1842.48	2250.77	2751.45
Other Assets	3136.45	3824.47	4668.05	5702.46	6970.98
TOTAL	105991	129241.4	157748.8	192705.2	235572.7

Projected Income Statement for Next 5 years

	2015	2016	2017	2018	2019
Income
Interest earned	9651.64	11754.97	14333.57	17495.19	21372.04
Other Income	2210.78	2692.56	3283.2	4007.39	4895.41
Total Income	11862.42	14447.53	17616.77	21502.59	26267.45
Expenditure
Interest expended	6271.26	7637.92	9313.39	11367.69	13886.71
Operating Expenses	2555.46	3112.36	3795.09	4632.19	5658.66
Provisions & Contingencies (include taxes)	1389.17	1691.9	2063.04	2518.1	3076.09
Total Expenses	10215.88	12442.17	15171.52	18517.97	22621.46
Net Profit for the Year	1646.53	2005.35	2445.25	2984.61	3645.99

About the Author

This report has been authored by Rohit Chaudhary. Rohit is pursuing his MBA in Finance from Institute of Management, Nirma University, Ahmedabad, Gujarat, India.

Disclaimer

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only.

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