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Decent performance; outlook steady

About the stock: Indian Bank is one of the largest and among the better performing PSU banks in India with a total business of over | 10.1 lakh crore

* Pan-India presence with strong branch network of 5721 domestic branches

* Diversified loan mix with RAM (retail/agri/MSME) forming ~61% to book

Q1FY23 Results: Healthy operational performance; asset quality improves

* Advances grew 9.1% YoY to | 425203 crore. Deposits up 8.2% YoY with CASA growth at 8% YoY

* NII up 13.5% YoY, 6.6% QoQ. NIMs improved 23 bps QoQ at 3.1%

* GNPA down 34 bps QoQ to 8.1%. R/s book declined 53 bps QoQ to ~4%

What should investors do? Indian Bank’s share price has given ~7% returns in the past three years. Improvement in credit growth outlook and asset quality with adequate capital position gives comfort.

* We maintain our BUY rating on the stock

Target Price and Valuation: We value Indian Bank at ~0.7x FY24E ABV and revise our target price from | 180 to | 210 per share

Key triggers for future price performance:

* Credit growth to be led by RAM segment, which will aid margins and earnings

* Management guidance to keep credit cost of <2% and recovery from stressed assets provides comfort

* Expect return ratios to improve gradually and, thus, aid valuations

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

* SBI is a public sector bank and also the largest bank in India with a balance sheet size of over ~ | 50 lakh crore

* BUY with a target price of | 615

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