Emkay Global Financial's report on Indian Bank
Indian Bank reported a loss of Rs2.2bn, mainly due to higher NPA provisions to improve specific PCR (now at 56%), fraud-related provision of Rs3.1bn and Covid-19-related provisions of Rs1.1bn on overdue loans benefiting from the standstill asset classification. Core PPoP was healthy, led by strong margins. Headline GNPA ratio improved 33bps qoq to 6.9%, mainly due to the moratorium (Rs7bn; 34bps of loans) and accelerated credit growth in Q4. As per management, the moratorium in the SME book stood at 40-45%. We introduce merged financials (including Allahabad Bank) and expect the bank to report negative RoA of -0.1% due to merger/Covid-19 related pain, but to gradually improve to 0.3% by FY22 led by better margins (benefiting from ALBK's strong CASA) and lower LLP.
We continue to like Indian Bank in the mid-cap PSB space, but believe that the merger will remain an overhang in the near term. We retain Hold/UW in EAP, with a revised TP of Rs70, based on 0.6x FY22 ABV.
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