Motilal Oswal's research report on Indian Bank
INBK reported healthy operating performance supported by modest opex and higher other income, even as business growth remains muted. NIM, however, expanded 51bp QoQ to 2.85% (higher slippages in 4QFY21). Provisions continue to remain elevated, despite the bank reporting healthy RoA/RoE of ~0.8%/15% in 1QFY22. Asset quality was largely stable even as slippages came in elevated (~5% annualized). Collection efficiency declined in 1QFY22, while witnessing improving trends from Jul'21. Restructuring book stands ~2.7% of loans, while the high SMA book (~7.6%) would keep asset quality under check. We expect business growth to pick up gradually, which is likely to support margin. However, slippages are likely to remain elevated, which would keep credit cost elevated. We estimate RoA/RoE of 0.8%/14.5% by FY23E. We resume coverage with a Buy rating.
However, lower collection efficiency, along with a high SMA book (7.6% of loans), would keep slippages elevated. We estimate credit cost to stay elevated at 2.1%/1.8% for FY22E/FY23E. We project loan growth at 9%/12% for FY22E/FY23E and estimate RoA/RoE of 0.8%/14.5% by FY23E. The bank is trading at reasonable valuations of 0.5x FY23E ABV. We resume coverage with a Buy rating and a TP of INR175 per share (0.6x FY23E ABV).
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