Buy Indian Bank; target of Rs 310: Emkay Global Financial

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26 Aug, 2025 12:21

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Indian Bank reported healthy core-operating profitability (up 22% YoY), led by healthy margin/other income, albeit partly offset by higher staff costs. Bank expects staff cost to remain elevated in H2 due to provision towards new wage cycle (as negotiations will begin soon), which will be largely offset by better NII growth, lower LLP and tax benefit to driveup RoA. Loan growth was strong at 15% YoY/3% QoQ, led by faster growth in the RAM portfolio, whereas growth in Corporate was relatively moderate due to the bank’s conscious stance to focus on the risk-reward ratio. The bank has increased credit growth guidance to >12% and believes NIMs will improve in the absence of interest reversal, unlike in Q2 (~Rs4bn). Fresh slippages moderated to Rs25bn/2.8% of loans (vs 3.4% in Q1) which, coupled with higher recovery/w-offs, led to sharp reduction of 80bps QoQ to 7.3% in GNPA ratio. Management expects NPA ratios to trend down which, coupled with higher PCR @ 81%, should contain incremental LLP (<2%).

We raise our earnings for FY23-25E by 6%-14% (respectively) and expect the bank to claw back RoA/RoE of 1%/15% by FY25E on the back of better growth/margins and lower LLP. We retain our BUY rating on the stock, with revised TP of Rs310/sh (earlier Rs210), based on 0.8 Sep-24E ABV vs our earlier 0.6x Jun-24E ABV.

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