Hold Indian Bank; target of Rs 341: Reliance Securities

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26 Aug, 2025 12:21

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Indian Bank has delivered a healthy operating performance in 1QFY18. Its operating profit surged by 38.7% YoY and 17% QoQ to Rs12.5bn led by strong growth in NII (18.1% YoY & 5.4% QoQ to Rs14.6bn) and relatively lower opex (10.9% YoY and -4.6% QoQ) of Rs8.6bn. Resultantly, the Bank’s net profit grew by 21.2% YoY and 16.5% QoQ to Rs3.7bn. However, fresh slippages increased to Rs7.1bn in 1QFY18 compared to Rs6.3bn in 4QFY17. Fresh slippages primarily came from one large corporate account along with recognition of NPAs from loan under special RBI moratorium post demonetisation. Further, the Bank’s operating revenue was supported by higher treasury profit and recovery from written-off accounts.

Following an impressive 121% upsurge in last 12 months, we believe that the current stock price has discounted most of the near-term positives. Further, Government of India is mulling consolidation of public sector banks, which creates a very high level of uncertainty for the Bank’s future earning trajectory, as the balance sheet quality of several PSU banks is considered to be pathetic. Further, we expect the Bank will continue to witness elevated level of credit cost, which will keep its earnings and return ratios subdued over next 6-8 quarters. We change our recommendation on the stock to HOLD from BUY with an unrevised Target Price of Rs341 based on 1.1x FY19E Adjusted book value.

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