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Buy IndusInd Bank, target Rs 1,690: IIFL

The brokerage has set a one-year horizon for the stock to hit the target price.

ETMarkets.com|
Updated: Jun 21, 2019, 12.10 PM IST
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Shares of IndusInd Bank traded at Rs 1,443.55 around 11:45 am on 21 June, 2019.
IIFL has given a buy recommendation on IndusInd Bank with a target price of Rs 1,690.

Shares of IndusInd Bank traded at Rs 1,443.55 around 11:45 am on 21 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

The Boards of IndusInd Bank (IIB) and Financial Inclusion (BHAFIN) have declared July 4, 2019 as the effective date of the merger as well as the record date for allotment of shares.

BHAFIN shareholders would be issued 639 IIB shares for every 1,000 shares held. A warrant issue at Rs1,709/warrant to IIB’s promoters would ensue, leading to further issuance of nearly 1.57 crore shares. This will lead to a cumulative dilution of 14.9 per cent.

BHAFIN’s CAR of 49.5 per cent, as of FY19, and the warrant conversion amounting to Rs 2680 crore (assumed over 18 months) will cumulatively add 220bps to IIB’s capital adequacy.

EPS accretion comes from nearly 400bps drop in cost of funds for BHAFIN, CRR/SLR requirements applicable on nearly Rs 2,800 crore of BHAFIN’s Rs 5,900 crore debt, and fee from sale of excess PSL.

As per the brokerage, BVPS accretion would be due to higher RoE and warrant conversion. The merger will generate a delta of nearly 40bps in NIM and nearly 20bps in RoA for IIB.

"We cut our fee and total income estimates to 32 per cent by FY22ii (39 per cent in FY19), building in a conservative case. Despite this, IIB’s RoA reverts to 1.8-1.9 per cent by FY21/22ii and the RoE to 18-18.5 per cent. This, along with the recent correction, makes the stock attractive," said the brokerage.
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