Indian Bank Ltd : Improved overall performance By ICICI Direct
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Buy Indian Bank Ltd For Target Rs. 180
Improved overall performance…
Indian Bank reported a good set of Q3FY21 numbers relative to PSU peers. Asset quality on a notional/proforma basis remained steady while a pick-up in loan growth remained a positive.
Net interest income (NII) for the bank was up 31% YoY, 4.1% QoQ to | 4313 crore, mainly driven by a rise in margins, controlled asset quality and pickup in loan growth. Net interest margin (NIM) for the quarter increased 22 bps YoY, 7 bps QoQ to 3.13% as a rise in low cost deposits helped in a faster decline in cost of funds vs. yields. Other income declined 16.5% YoY, 13.3% QoQ to | 1397 crore. A higher base YoY along with lower bad debt recovery were responsible for declining figures.
Opex declined 5.4% sequentially as the previous quarter had one-off provisions for wage revision of ~| 250 crore. Provisions for the quarter were up marginally by 1.3% QoQ. As a result of healthy topline and controlled opex, the bank reported a PAT of | 514 crore vs. loss of |1739 (merged figure) YoY
Business growth for the quarter showed improved traction as gross advances were up 7.5% YoY, 6.5% QoQ to | 389646 crore. Growth in advances was led by retail, agriculture and MSME segment, which were up 13% YoY, 11% YoY, respectively. Together they form ~56% of total advances. Corporate book growth was miniscule at 2% YoY amid cautious stance towards this segment. The bank till now has sanctioned | 277 crore loans under ECLGS-2.0 while it has disbursed | 5203 crore in ECLGS-1.0.
Asset quality performance was healthy as headline GNPA and NNPA declined from 9.89% and 2.96% to 9.04% and 2.35%, respectively. Also, on a proforma basis, GNPA remained steady at ~10.38% vs. 10.45% (calculated) in the previous quarter. Restructured portfolio due to Covid-19 was at 1.62% of standard advances. Proforma/notional slippage for 9MFY21 were around | 5000 crore against which the bank has a provision cover of 21%. Of the total restructuring, ~| 400 crore came in from retail segment. Collection efficiency has been showing an improving trend on a monthly basis from September onwards and is currently above 91% level.
Valuation & Outlook
Improving macroeconomic conditions coupled with the focused approach of the bank on growth as well as asset quality paves the way for a healthy revival in performance ahead. Indian Bank has shown an encouraging performance considering the current situation and some green shoots are embedded within these results. Asset quality performance has been improving this quarter while loan growth pick-up along with management guidance of further traction is a positive. We expect a gradual improvement in RoA, RoE to 0.7%, 12.5%, respectively, in FY23E. Therefore, we remain positive on the relative performance of the bank. Hence, we upgrade our target price to | 180 (earlier | 88), valuing the bank at 0.9x FY23E ABV. Consequently, we upgrade our recommendation from HOLD to BUY
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