Hold Indian Bank; target of Rs 70: Emkay Global Financial

Emkay Global Financial's report on Indian Bank

Indian Bank reported a strong beat on PAT at Rs4.1bn (vs est. Rs2.1bn), led by healthy margins, treasury gains and contained provisions as NPA formation is deferred due to SC stay. INBK did not make any additional Covid-19 related provisions in Q2, though cumulative provisions stood at Rs63bn (19bps of loans) as of Sep’30. Headline GNPA ratio improved by 101bps qoq to 9.9% due to the Supreme Court’s stay on NPA tagging and high write-offs, while specific PCR improved 400bps qoq to 72%. Collection efficiency improved across portfolios (Retail at 95%, Corporate at 96%). The bank has optimistically guided for 3-4% of loans to be restructured mainly from the midcorporate sector affected by Covid-19, and contain the GNPA ratio at 10%. However, we prefer to remain cautious and build in a higher NPA ratio at 11% and RSA at 5%.

Outlook

We continue to like Indian Bank in the mid-cap PSB space but believe that post-merger integration and managing asset quality in the wake of Covid-19 will be critical for rerating. We retain Hold with a TP of Rs70 (based on 0.4x Sep’22E ABV).