Buy Indian Bank Ltd For Target Rs 1,000 By Emkay Global Financial Services Ltd
Indian Bank (INBK) maintains its superior performance, with strong credit growth at ~15% YoY despite selling IBPCs, healthy margins and fees including those of the non-fund-based business and PSL, and continued improvement in asset quality. However, the bank made additional provision of Rs3.1bn to absorb any initial impact due to the ongoing business disruption amid the WestAsia conflict. For FY27, the management has given guidance for sustaining the healthy growth albeit remaining focused on managing margins at 3.1-3.2%. INBK carries one of the highest specific PCRs, of 93%, while it has plans to make additional provision during FY27 to limit the ECL impact. We raise FY28E earnings by 2%, while introducing our FY29 estimates. We expect INBK to deliver a superior RoA of ~1.1-1.2%/RoE of 15-16% over FY27-29E. This, coupled with its best-in-class asset-quality performance, strong capital buffer, and credible management, calls for a sustained premium valuation. Thus, we retain BUY on INBK and with TP of Rs1,000.
Healthy business growth in 4Q; guidance for focus on profitability, growth
INBK continues to deliver strong credit growth, at 14.7% YoY/4.7% QoQ, despite offloading the portfolio via IBPCs, almost akin to the system, driven by continued momentum in its high-yielding RAM book. CASA growth too accelerated, with CASA ratio now at 38% – the bank aims to improve this to 40% and hence manage cost of funds. INBK maintains its conservative growth guidance of 11-13% for FY27, and targets managing margins at 3.1-3.25% amid the rising funding cost due to the ongoing WestAsia conflict
Steady improvement in asset quality; builds further provision buffers
Slippages were contained at Rs14bn/1% of loans; this, coupled with higher write-offs, led to continued reduction in GNPA ratio to 2% and NNPA at a system low of 0.15%. INBK attributed seasonal factors and select PSU accounts to the increase in the SMA 2 pool to Rs92bn/1.4% of loans. The management indicated that there are no signs of portfolio stress due to the ongoing West-Asia conflict, although it remains cautious; it has made additional ad hoc provisions to the tune of Rs3.1bn. This is in addition to standard asset provisions of ~Rs3.5bn made toward ECL during 3Q. The bank has also indicated that it would make further provisions in FY27 toward ECL and still deliver a healthy 1.2-1.3% RoA.
We retain BUY with unchanged TP of Rs1,000
We expect Indian Bank to deliver a superior RoA of ~1.1-1.2%/RoE of 15-16% over FY27-29E. This, coupled with its best-in-class asset-quality performance, strong capital buffer, and credible management, calls for a sustained premium valuation. Thus, we retain BUY with target price of Rs1,000. Key risks: macro dislocation hurting growth/asset quality, and merger of any other weak PSB with INBK.
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