Buy Indian Bank; target of Rs 900: Emkay Global Financial

Emkay Global Financial' research report on Indian Bank

Indian Bank (INBK) continues to rank among the best performing PSBs, and our recent interaction with the MD and CEO, Binod Kumar reaffirms the bank’s firm focus on delivering sustainably higher profitability over growth. The bank clocked strong ~14% credit growth in 2Q; however, it conservatively guided for 10–12% credit growth, with a positive bias, subject to no compromise on margins. The bank also plans to ramp up its otherwise weak non-fund business growth to drive up fees. NIM shall moderate a tad in Q3, due to bunching-up of MCLR pricing in 3Q, while inching up a bit in 4Q, subject to no rate cut. ECL impact on CAR could be ~150bps, however, the bank has proactively started making provisions to limit the transitional impact on 1-Apr-27. The bank believes that better operating leverage (mainly non-staff cost) and focus on fees should partly offset the eventual moderation in AUCA recovery and ECL provisions, to help sustain RoA>1-1.1%.

Outlook

We remain positive on Indian Bank, backed by its superior return profile and credible management, and retain BUY with a recently raised target price of Rs900 (1.3x Sep-27E ABV). We, however, remain watchful of the evolving developments around PSBs’ consolidation, currently under discussion at the ministry level, in which Indian Bank could potentially be involved.