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Relatively better performance; guidance positive

About the stock: Indian Bank is seventh largest and among the better performing PSU banks in India with total business of over | 9.2 lakh crore.

* Pan-India presence with strong branch network of 5809 domestic branches

* Diversified loan mix with RAM (Retail/Agri/MSME) forming 58% to book

Q1FY22 Results: Indian Bank reported relatively better performance.

* Advances up 6.2% YoY to | 3.9 lakh crore, deposits up 10.4% YoY to | 5.4 lakh crore

* NII up 19.8% QoQ, 3% YoY at | 3994 crore. NIMs up ~51 bps QoQ to 2.85%

* GNPA down 16 bps QoQ to 9.69%, restructuring up 73 bps QoQ to 1.4%.

What should investors do?

Indian Bank’s share price has given flattish returns in the last five years but has provided over 2.2x returns in the past one year

* Factoring a sweet spot for Indian bank post-merger - bringing strong deposits and lending franchises together, Maintain BUY rating on the stock

Target Price and Valuation: We value Indian Bank at ~0.7x FY23E ABV and maintain our target price at | 180 per share

Key triggers for future price performance:

* Expect credit growth at 10-12%; liabilities franchise healthy

* Continued focus on RAM to aid margin improvement & earnings

* Guidance to keep credit cost <2% and slippages less than 3% provide comfort.

* Accumulated loss from merger to provide benefit on tax outgo for two years

Alternate Stock Idea: Apart from Indian Bank, in our coverage we also like SBI

* SBI is the largest bank in India with advances portfolio of over | 25 lakh crore. The bank also has among top operating metrics in the PSU space

* BUY with a target price of | 500

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