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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 | 11 lakh crore.

* Pan-India presence with strong branch network of 5787 domestic branches

* Diversified loan mix with RAM (retail/agri/MSME) forming ~60% to book

Q4FY23 Results: Indian Bank reported a mixed operational performance.

* Gross advances grew 13.9% YoY to | 473586 crore. Deposits were up 4.6% YoY with CASA growth at 5% YoY

* NII was up 29.5% YoY, 0.2% QoQ. NIMs declined 15 bps QoQ at 3.6%

* GNPA down 58 bps QoQ to 5.95%. R/s book was at 2.4% of total loan book

What should investors do? Outlook on credit growth and margins remains comfortable. Moderation in credit cost is expected to be offset by normalised taxation. However, levers for further improvement in return ratio remain unclear with sustained traction to act as a re-rating catalyst.

* We downgrade the stock from BUY to HOLD rating

Target Price and Valuation: Indian Bank is expected to deliver credit growth largely in line with industry and RoA of ~0.9% in FY25E. Thus, we value the bank at ~0.8x FY25E ABV and maintain our target price of | 335 per share.

Key triggers for future price performance:

* Credit growth guidance of 10-12%, driven by RAM segment is seen aiding business and margins

* Improvement in CD ratio and increase in proportion of RAM portfolio to partially offset pressure on margins amid repricing of liabilities

* Moderation in credit cost amid healthy buffer seen to be offset by resumption of normalised taxation

* Given anticipation of steady margins and normalised taxation, RoA is expected to witness a gradual improvement at 0.8-0.9%

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 ~ | 52 lakh crore

* BUY with a target price of | 750

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