Motilal Oswal's research report on Indian Bank
INBK reported PAT of INR3.7b (in-line) v/s INR3.2m in 1QFY17, led by strong total income of INR21.1b (+26% YoY led by 48% YoY growth in other income) and controlled opex (11% YoY, -5% QoQ). Provisioning was 52% higher than estimate at INR7.2b, as PCR increased 350bp QoQ to 61.65%. Gross slippages increased 14% QoQ, but strong recoveries and upgrades at INR3.5b (v/s INR201m in 4QFY17) led to net slippage ratio of 1.1%, the lowest in seven quarters. Absolute GNPA declined 2% QoQ, while GNPA/NNPA fell 26bp/34bp QoQ to 7.21%/4.05%. Calculated PCR improved to 45.7%. Total stressed book stood at 8.5% of net advances. Overall loan book grew 1%/4% QoQ/YoY to INR1.29b. The bank cut down on its corporate book exposure, with the share of corporate loans declining 200bp YoY to 49%. With a comfortable capital position (CET1 11.7%), the bank is well poised to grow its loan book. Calculated NIM expanded 27bp QoQ to 2.94% (28bp higher than estimate), driven by lower CoF (5.48% v/s 6.24% YoY), partially offset by lower yield on advances (8.8% v/s 9.25%). NIM is expected to improve further with moderation in interest reversals (INR450m in 1QFY18).
Outlook
Focus on balance sheet consolidation and core operating parameters has led to improving earnings, despite challenging macros. Capitalization is best-in-class with CET 1 ratio of 11.7%. The bank is planning a FPO to reduce GoI shareholding to 75%. Improvement in loan growth is expected to drive operating leverage in the ensuing years. We expect RoAs/RoE to be the best among PSBs at 0.7%/11.2% (FY19E). Maintain Buy with a target price of INR382 (1x FY19E BV) based on RI model. For all recommendations report, click here
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