Buy Indian Bank; target of Rs 295: Sushil Finance

“Indian Bank has managed to grow at a decent pace in the past few years and maintain a high quality asset profile. However, in light of challenging credit offtake conditions & considering its H1FY12 result, we have revised our NII growth estimates. In addition to this, we have also increased our estimates for NPA provisions on higher systemic risk on its loan book and investment depreciation provisioning considering the sharp increase in the bond yields during H1FY12.”
 
“During Q2FY12, NII grew by 15% YoY and stood at Rs.11.35 bn on the back of a robust 22% YoY growth in its Advances. Its Deposits grew by 19% YoY, while its term deposits grew by 23% YoY and CASA grew by 9.5% YoY. Its CASA share in total deposits declined by 246 bps YoY and 120 bps QoQ, now forming 29.8% of its total deposits. Its non- interest income saw a decent 21% YoY growth. Its operating expenses were largely contained with marginal increase of 5% YoY, mainly due to slower growth in employee expenses (1% YoY decrease) while its other operating expenses saw a increase of 20% YoY on higher branch expansion during the quarter. Its Cost to Income ratio stood at 38.2% in Q2FY12 as compared to 42.3% in Q2FY11, indicating an improvement in its productivity. The Bank’s total provisions in Q2FY12 increased by 66% YoY to Rs.2.2 bn, largely on account of higher provisions on investment depreciation (Rs.960 mn in Q2FY12 as against Rs.180 mn in Q2FY11). The Bank’s net profit saw a decent growth of 15% and stood at Rs.4.7 bn for Q2FY12.”

“We now expect its Advance & Deposit to grow by 18.3% & 17.7% in FY12E and 17.4% & 16.8% in FY13E, while its Net Profit to grow by 4% in FY12E & by 8% in FY13E. The Bank currently trades at an attractive valuation of 0.8x FY13E ABV & 4.3x FY13E Earnings. We believe the stock can trade at 1.2x P/ABV given its strong deposit franchise, decent asset quality & sustainable +19% ROE. We maintain our “BUY” rating on the stock with a revised price target of Rs 295,” says Sushil Finance research report. 

Institutional holding more than 40% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.