We are increasing our fair value estimate for Indusind Bank by 10% to Rs 930 per share, or $14.50 per GDR, as we incorporate the recent equity capital raised by the bank, which was higher than the total amount of capital we anticipated and at a less dilutive price.
The issuance took place at 4 times book value, although at a modest discount to the trading share price at the time.
The Rs 51 billion in capital was raised through a qualified-institutional placement and Rs 7.5 billion through a preferential allotment, taking Tier 1 capital adequacy ratio for the bank to 16.5% as of September 2015, up from 11.55% as of June 2015. Both these are reflected in our revised balance sheet.
Other than this capital adjustment, our forecasts for the bank remain unchanged. Our revised fair value estimate represents 4.5 times 2016 book value per share, and 21 times our fiscal 2016 diluted earnings per share estimate of Rs 44.8.
The bank’s second-quarter fiscal 2016 results were in line with our fiscal 2016 growth expectations. Indusind’s earnings were up 30% year on year, compared with our full-year estimate of 32%. This was supported by underlying loan growth of 24%, in line with our estimate. Including the acquired RBS jewellery portfolio, the loan book grew 32%. Net interest margins expanded to 3.88%, versus 3.63% for the year-ago quarter, inching closer to our 4% estimate for the year. Fee income continued to grow ahead of loan growth at 32%, and ahead of our 28% estimate for 2016.
Overall, we remain optimistic about the future growth and profitability prospects for this narrow-moat bank. However, the stock trades close to our fair value estimate.
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