Making money on your mind? IndusInd Bank share price seen soaring; this Dalal Street stock is hot!

Ahead of the presentation of Budget 2019, placing bold bets would be one way to make good money from stock exchanges. Just three days are left for the big day, when Finance Minister Nirmala Sitharaman presents her first, but India's FY20 final budget on July 05, 2019. Before that, finding a good money-making opportunity can make for a wise investment. That said, on Tuesday, IndusInd Bank opened the gate for a great opportunity. Research Analysts at Nirmal Bang have given a buy rating with a target price of Rs 1,800 ahead. IndusInd Bank stock closed at Rs 1419.80 per piece down by Rs 13.40 or 0.93%. If compared with current price, IndusInd is one stock to accumulate wealth, as gains are seen to be massive - over 27%! 

Pritesh Bumb and Prabal Gandhi, Research Analyst at Nirmal Bang listed out few factors which make IndusInd Bank a hotstock on exchanges. 

Merger to boost NIMs, operational impact to be gradual: 

With the mergerof BHAFIN with IIB, NIMs will improve 30-40bps on immediate basis, taking overall NIMs to ~4.0%. This will be led by accrual on overall yields by 70-80bp. Operationally benefits of the merger will accrue over time especially on opex and CRWA, while fee income might witness slowdown.

Liability franchise has been strengthening by the year:

Liabilities franchise is being ignored in the current de-rating of IIB. The bank has been able to continuously build strong liability franchise year over year. In last ten years, the bank added +2x CA market share to 3% of SCBs, +1.3x addition in SA market share to 1.5% of SCBs and doubled its overall deposit market share to 1.7% of SCBs and all three metrics have grown at CAGR of 27-29%. Market share gain has been possible due to strong addition to liability customer base and robust uptick in average deposit balances, largely helped by diverse asset products. With BHAFIN, bank’s missing piece of rural/semi urban presence is now complete, helping granularity in liabilities and sustained growth. 

Well positioned over medium term with better return ratios & capital:

Strong loan growth of +25% (with diversification), better NIMs of 4.0% and strong retail franchise on deposits & loans will help move back return ratios to 17-18% by FY21. Also, strong capital position with Tier-I of 15% (incl. warrants) gives additional comfort on balance sheet. 

Considering above, the duo said, "IIB would immensely benefit post-merger of BHAFIN leading to strong NIMs of ~4.0%, capital augmentation with Tier-I of 15% (incl. warrants) while providing a better balance to loan book (48-50% consumer share). We believe recent noise on asset quality might remain a niggling issue in near term especially as MD & CEO’s current term ends in next 3-4 months’ time. We have presumed that post-merger benefits could be utilized for additional contingency provisions and on conservative basis incorporate credit cost of 100bps in our estimates for FY20 versus guidance of 60bps."

They added, "This should  cushion hits to balance sheet from asset quality deterioration in near term. Despite issues, the bank is well positioned with return ratios of 17-18% & strong EPS CAGR of 32% over FY19-FY21. IIB now trades at 16% discount to its LTA, although re-rating needs improved visibility on asset quality and successor to existing CEO. We retain BUY with revised TP of Rs1,800 (from Rs1,832) based on 2.9x Mar-21 ABV (from 3.2x Mar-21 ABV) as we incorporate BHAFIN and issue of warrants (Rs27bn) in our estimates."