Buy Indian Bank; target of Rs 675: Emkay Global Financial

Emkay Global Financial's research report on Indian Bank

Indian Bank consciously slowed down credit growth in 3Q to ~11% YoY to protect its margins, which manifested via a 6bps QoQ improvement in NIM to 3.45%, defying industry trend. This, coupled with steady improvement in NPAs (GNPA ratio down to 3.3% and NNPA ratio at an industry-low of 0.2%) and thus lower provisions, led to a 7% beat on PAT at Rs28bn and hence superior RoA at 1.4%. The only minor irritant in 3Q was rise of Rs29bn QoQ in the SMA 1 & 2 pool (led by 3 government accounts) to Rs77bn (1.4% of loans), of which 2 accounts have been resolved till now and the pool has now reduced to below Rs30bn. That said, the bank carries enough provision buffers including specific PCR at an industry high of ~94%, and has made accelerated standard asset provision of Rs5.5bn in 3Q.

Outlook

We retain BUY and TP of Rs675 (valuing it at 1.2x Dec-26E ABV) given its unwavering focus on delivering superior profitability and strong capital/provision buffers. Indian Bank remains our preferred pick, given its consistently healthy performance, defying industry-wide weakness.