Buy Indian Bank For Target Rs..334 - Anand Rathi Share and Stock Brokers
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Strong quarter, earnings to gradually improve; retaining a Buy
Core operating profits for Indian Bank were up 24.2% on a steep rise in NIM and good other income growth. Higher provisions, however, (~2.2%) kept RoA under 1%. Asset quality improved across segments. Ahead, we expect slippages to moderate as most of the stress has already been recognized. Besides, we expect the bank to gain market share from its peer PSBs. We retain our positive view on it, at a TP of Rs334, valuing it at 0.8x P/ABV on its FY25e book.
Asset quality improves. Q3 FY23 slippages were Rs13.1bn (1.2% of loans) lower than in the previous quarter and better than we expected. Asset quality improved in all segments. With the bulk of the accounts stressed by Covid’19- related restrictions already delinquent/restructured in the last few quarters, we expect slippages to moderate from now. The GNPA ratio fell 77bps q/q to 6.5% due to strong recoveries and higher write-offs. The bank’s overall collection efficiency (CE) was stable in Q3 FY23 at ~95%
Loan growth to pick up. The gross loan book was Rs4.5trn (up ~12.8% y/y) driven by secular growth across segments. With a cleaner balance sheet, adequate capital and a strong deposit base, we expect a pick-up in credit growth from
now; accordingly, we model low-teen growth for FY24 and FY25.
Earnings to normalise. With a pick-up in business growth and a moderating slippage run-rate, credit costs are expected to be soft. Higher business growth combined with benign credit costs would lead to strong profitability in the medium term. We estimate a 0.9% RoA through FY24/25
Valuation. Our Jan’24 target of Rs334 is based on the two-stage DDM model. This implies a ~0.8x P/ABV multiple on its FY25e book. Risks: Lumpy slippages from the corporate book; lower-than-expected loan growth.
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