Results Review for IndusInd Bank, Ajanta Pharma, Motilal Oswal Financial Services

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By Krishnan ASV

IndusInd Bank (NS: INBK ): IndusInd Bank’s (IIB) 4QFY21 operating performance was above our expectations (PPOP growth of 8% YoY), marred by higher-than-expected provisions. While the bank continues to gain traction on deposits mobilisation (27% YoY), it seems to be conservative on assets mobilisation (loan growth of 3% YoY) with a greater focus on portfolio re-jigging (granularisation of corporate portfolio). On the asset quality front, CFD witnessed high slippages (5.2%, annualised) along with a higher share in the restructured pool (~80%), while the “net slippages” for CCB were relatively muted (1.5% annualised). The strategic priorities in terms of asset mobilisation, along with elevated credit costs, are likely to further prolong ROE normalisation. We reduce our FY22/FY23 EPS by 1.1/5% to factor in lower loan growth and higher credit costs. Maintain REDUCE with revised TP of INR735.

Shriram Transport (NS: SRTR ) Finance: Shriram Transport Finance (SHTF) reported in-line P&L performance (13% YoY PPOP growth) with steady AUM growth (~7% YoY) and gradually improving asset quality. AUM growth was largely driven by the used vehicles segment with an uptick in economic activity during the quarter. Non-tax provisions remained steady at ~2.7% of AUM and are expected to moderate to 2.0% during FY22-FY23E. GNPLs declined sequentially by 5bps (on a Pro-forma basis) with write-offs at ~2% of AUM. We revise our FY22/FY23 earnings estimates downwards by 3%/5% to factor in higher LLPs on account of the second wave of pandemic and higher provisioning buffer for slippages. Maintain ADD with a revised TP of INR1,441.

AU Small Finance Bank Ltd (NS: AUFI ): AU Small Finance Bank’s (AUBANK) 4QFY21 PPOP growth was below expectations due to higher-than-expected operating expenses, partially offset by higher fee income (PSLC etc). The balance sheet continued its strong momentum of growth (AUM/disbursement growth of ~14% QoQ), driven by wheels, SBL, and housing. However, the bank surprised negatively on the asset quality front with GNPAs at 4.3% (Pro-forma GNPA at 3.3% in 3QFY21), far higher than our expectations. We revise our FY22/FY23 earnings downwards by 9.9%/6.5%, primarily on account of higher LLP, although LGDs are likely to remain unchanged. Maintain ADD with revised TP of INR1,056. Trent: Trent’s 4Q performance surprised positively. Standalone revenue grew 7% YoY to INR7.7bn (HSIE: 2.4%). Westside is estimated to have recovered base-line revenue (in-line), implying that Zudio overshot expectations.

The bigger surprise was on GM recovery, which expanded 671bp YoY to 53.2% (HSIE: 47%). We suspect GM expansion was led by (1) write back of inventory provisions made in 1H and (2) better GMs in Zudio. 2H GM recoups helped Trent clock its typical annual GM (49.7%) in FY21. Costs continued to normalise; hence, EBITDAM beat lagged GM beat in 4Q. We revise our FY23 EBITDA estimates upwards (+9%) to account for higher EBITDAM (+100bp vs earlier). However, at 38x FY23 EV/EBITDA, there is no investment case. Maintain our SELL recommendation with a SOTP-based TP of INR 625/sh (implying 30x FY23 EV/EBITDA). Note: TP change largely mimics EPS change.

Ajanta Pharma Ltd (NS: AJPH ): Ajanta delivered solid Q4 with revenue/EBITDA growth of 11%/71% YoY amidst a challenging environment. While revenues came in line, strong recovery in India (+23% YoY) and continued growth in the US (+21% YoY) was encouraging. EBITDA margin improved to 34.3% (+200bps QoQ) driven by higher gross margin and lower other expenses. We expect the margin to stabilize around ~31%+ levels in FY22 (vs. 26%/34% in FY20/21) as other expenses normalise. With the conclusion of major CAPEX and steady growth in key markets, operating leverage benefit is expected to drive ~13% earnings CAGR over FY21-23e and core ROCE expansion to 28% in FY23 (from ~17%/25% in FY20/21). Maintain BUY. Revised TP of INR2,225/sh.

Motilal Oswal (NS: MOFS ) Financial Services: Strong cash/derivative volume at +19/20% QoQ drove capital markets APAT +114/12% YoY to INR 917mn. AMC’s APAT grew 86/65% to INR 746mn (+73% vs. est.) on the back of healthy equity markets and certain one-offs. Significant MTM gain (INR 2.6bn, +25% QoQ) on treasury resulted in MOFS (ex. MOHFL) APAT growth of 31% sequentially to INR 4.3bn. We have increased our FY22/23E estimates to factor in the lower impact of peak-margin requirements. We retain an ADD with a TP of INR 800 (15/25x Mar-23E Broking/AMC APAT, + 0.7/0.5x for Mar-23E treasury/ MOHL).

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