Buy Indian Bank; target of Rs 625: Motilal Oswal

Motilal Oswal's research report on Indian Bank

Indian Bank (INBK) reported a PAT of INR22.5b in 4QFY24 (up 55% YoY/6% QoQ; in line) led by a healthy other income. NII growth was healthy at 9.2% YoY (in line). Margin improved 3bp QoQ to 3.52% during the quarter. Gross loan growth was healthy at 13% YoY/5% QoQ, while deposits rose 11% YoY/5% QoQ. Consequently, the C/D ratio was largely flat at 74.8%. Management continues to focus on profitable growth.

Outlook

INBK has gradually raised its MCLR-linked loans, which should provide cushion to its margins, particularly as the rate cycle turns. Management has guided healthy margins at 3.4- 3.5% for FY25. The bank expects this growth trend to remain steady and it will continue to focus on profitable growth. Asset quality ratios improved further as the bank maintained the best-in-class coverage ratio, which, along with a low SMA book, provided comfort on incremental credit costs. We raise our earnings estimates by 7% each for FY25/26 due to healthy margins, contained opex, and provisions as well as expect the bank to deliver an RoA/RoE of 1.3%/17.7%. Reiterate BUY with a revised TP of INR 625 (premised on 1.1x FY26E ABV).