Buy Indian Bank; target of Rs 245: ICICIdirect.com

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

The share price of Indian Bank has registered a breakout from the long term Cup and Handle pattern during December 2014 signalling strength and a resumption of the next up leg, thereby offering a fresh entry opportunity to ride the ongoing uptrend from a medium-term perspective.

The price action since 2013 till date has appears to have taken the shape of a bullish Cup and Handle formation. As the name suggests, the pattern is divided into two parts. Price advance after a decline forms the Cup (in this case the price up move from October 2013 lows) and then forms a trading range near historical highs before a breakout. This trading range forms the Handle of the pattern. Since breaking out of the long term pattern the stock has consolidated above the breakout area. Subsequent, retesting of the breakout area during the current week’s trade offers a fresh entry opportunity with a favourable risk-reward equation.

The base of the Handle of the Cup and Handle pattern is placed at the 52 weeks EMA (currently at Rs 158), which also coincides with the 61.8% retracement of the previous major rally from Rs 87 to Rs 199, signalling a major long term support at the lower levels and a strong bounce from the support level indicates strong appetite to own the stock among market participants.

Considering the overall positive price structure, we believe the stock offers a good reward/risk set-up to ride the next up move. We expect the stock to head towards Rs 250 in the medium-term being the price parity of the previous up move (Rs 136 to Rs 210) as measured from the December 2014 low of Rs 176 projects upside towards Rs 250.

Indian Bank is a south-based PSU bank with a major presence in Tamil Nadu (990 branches of the total 2134 branches). The bank’s advances have grown at a healthy CAGR of 18.8% over FY10-14 to Rs 124359 crore. Corporate loans (Rs 64639 crore) comprise 52% of advances, followed by agricultural loans (Rs 19047 crore) at 15%, retail (Rs 17068 crore) and SME loans (Rs 16104 crore) each at 13% as at the end of FY14. The management has guided an advances growth of 10-12% for FY15 with focus on growing the low ticket retail and SME loans while going slow on corporate loans citing the overall weak economic environment. Deposits have grown at 16% CAGR over FY10-14 to |162275 crore. Domestic CASA share stands healthy 28.3%. The bank aims to add ~115 branches each year with continued focus in the southern region.

The PAT increased from Rs 1245 crore in FY09 to Rs 1710 crore in FY12. However, in FY13, it came down to Rs 1588 crore and in FY14 PAT de-grew 21% YoY to Rs 1161 crore due to higher provisioning The profitability of the bank, of late, has seen some erosion mainly due to higher credit cost. The management has indicated a higher PAT in FY15 led by trading gains and reduced cost of funds. G-Sec yields have dropped ~50 bps across tenure. This should lead to a reversal in MTM provision/increased other income. Despite the asset quality pressures and rising credit cost, the bank currently has RoA and RoE of 0.7% and 9%, respectively. However, in the past, it used to be 1.3% and 15-17%, respectively. The current ratios are still better than mid-sized PSU peer banks.

Strategy: "Buy Indian Bank in the range of Rs 194-199 for a target price of Rs 245.00 with a stop loss below Rs 175.00 on a closing basis", says ICICIdirect.com research report.

Read More