Buy Indian Bank; target of Rs 180: ICICI Direct
ICICI Direct is bullish on Indian Bank has recommended buy rating on the stock with a target price of Rs 180 in its research report dated February 18, 2021.
February 18, 2021 / 02:42 PM IST
ICICI Direct's research report on Indian Bank
Indian Bank reported a good set of Q3FY21 numbers relative to PSU peers. Asset quality on a notional/proforma basis remained steady while a pick-up in loan growth remained a positive. Net interest income (NII) for the bank was up 31% YoY, 4.1% QoQ to Rs 4313 crore, mainly driven by a rise in margins, controlled asset quality and pick-up in loan growth. Net interest margin (NIM) for the quarter increased 22 bps YoY, 7 bps QoQ to 3.13% as a rise in low cost deposits helped in a faster decline in cost of funds vs. yields. Other income declined 16.5% YoY, 13.3% QoQ to Rs 1397 crore. A higher base YoY along with lower bad debt recovery were responsible for declining figures. Opex declined 5.4% sequentially as the previous quarter had one-off provisions for wage revision of ~Rs 250 crore. Provisions for the quarter were up marginally by 1.3% QoQ. As a result of healthy topline and controlled opex, the bank reported a PAT of Rs 514 crore vs. loss of Rs1739 (merged figure) YoY.
Improving macroeconomic conditions coupled with the focused approach of the bank on growth as well as asset quality paves the way for a healthy revival in performance ahead. Indian Bank has shown an encouraging performance considering the current situation and some green shoots are embedded within these results. Asset quality performance has been improving this quarter while loan growth pick-up along with management guidance of further traction is a positive. We expect a gradual improvement in RoA, RoE to 0.7%, 12.5%, respectively, in FY23E. Therefore, we remain positive on the relative performance of the bank. Hence, we upgrade our target price to Rs 180 (earlier Rs 88), valuing the bank at 0.9x FY23E ABV. Consequently, we upgrade our recommendation from HOLD to BUY.
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