Buy Indian Bank; target of Rs 220: Emkay Global Financial

Emkay Global Financial's report on Indian Bank

Indian Bank reported a miss on PAT at Rs6.9bn vs. our estimate of Rs8.7bn, mainly due to higher provisions, as the bank shored up its PCR in line with large peers to 72%, including on Srei Infra (100% PCR). Asset quality was a mixed bag, with the GNPA ratio down 43bps qoq to 9.1%. However, restructuring remains elevated at 5% of loans. The bank claimed that the relapse rate from the restructured book remained low at 3%. Loan growth was moderate at 3% yoy, which the bank expects to improve to ~8% in FY22, calling for better growth run-rate in Q4. NIM improved 14bps qoq to 3%, mainly due to lower interest reversal on NPAs and yield on the balance with the RBI. Fresh slippages remained elevated in Q3 at Rs27bn (3% of loans) due to higher retail/corporate slippages. Slippages may remain elevated in 4Q in case Future Retail slips, to which the bank has exposure to the tune of Rs9bn (15% PCR). Factoring in higher LLP, we cut our FY22E EPS by 3%. However, we expect the bank to deliver healthy RoA/RoE of 0.8%-13% by FY24E.

Outlook

We believe that Indian Bank is one of the best mid-cap PSBs, with strong capital ratios and liability profile, as well as the ability to deliver strong return ratios as growth accelerates. Retain Buy with a TP of Rs220, based on 0.7x Dec’23E ABV, offering 38% upside from CMP.