Buy Indian Bank Ltd For Target Rs.1,000 Prabhudas Liladhar Capital Ltd
Earnings quality remains superior among PSBs
INBK saw decent quarter as core PPoP was 4% ahead led by slight beat on NII, fees and opex; asset quality too was steady. FCNR(B) deposits were INR225bn and excluding leverage, credit growth was 2.9% QoQ that was mainly driven by RAM segments. Bank sounded confident to maintain its credit momentum; it raised loan growth guidance for FY27E from 11-13% to 14-15%; we are factoring 16% YoY. LDR at 81% and CET-1 of 15% suggests that domestic growth run-rate could sustain. NIM is expected to increase by 5-6bps in Q3FY27 due to repo hike. We keep multiple at 1.3x on Sep’28 ABV and maintain TP at INR 1,000. Retain ‘BUY’
Slight beat on core PPoP due to better NII, fees, opex:
NII was a tad higher at INR77.2bn (PLe INR76.5bn) with credit growth/NIM being in-line. NIM (calc.) was 3.17% (PLe 3.18%); reported NIM was up 2bps to 3.31%. Credit/deposit growth was 17.5%/12.5% YoY. Other income was higher at INR39.5bn (PLe INR 27.8bn) which included NSE stake sale gain of INR13.9bn; fee was 1.3% higher. Opex at INR45.8bn was 2.2% lower due to lesser staff cost and other opex. Core PPoP at INR52.6bn was 3.9% above PLe; PPoP was INR 70.9bn. GNPA was lower at 1.61% (PLe 1.72%) due to lower slippage at INR11.8bn (PLe INR12.7bn) and recoveries at INR8.5bn (PLe INR7bn). Provisions were INR22.2bn (PLe INR11.6bn); provisions of INR16.7bn were created against potential risk of West-Asia crisis and ECL impact. Core PAT was INR24.3bn (PLe INR20.6bn); PAT was INR34.6bn.
Domestic loan growth led by RAM:
Credit growth was 5.7% QoQ with domestic credit accretion at 4.4% led by retail (4.3%), agri (8.1%) and SME (5.5%). Agri gold (INR1.1trn) saw a strong 11% QoQ growth. Corporate pipeline is INR630bn with INR300bn sanction. Bank's agri exposure to drought affected states is minimal. INBK expects current loan momentum to sustain, and it raised guidance from 11-13% to 14-15%. Deposit accretion was 3.5% QoQ; ~74% of QoQ accretion or INR225bn was led by FCNR(B) deposits which were partly utilized to pay-off bulk deposits of INR100bn. Leveraged portion of FCNR(B) included in loans was USD2bn. CET-1 is strong at ~15%.
NIM to improve in Q3FY27:
Domestic NIM was flat QoQ at 3.4% while overseas NIM was up 8bps QoQ due to churning of the international portfolio. Management expects further NIM expansion of 5-6bps in Q3FY27 led by repo rate hike after adjusting for NIM dilution due to FCNR, while higher deposit costs and funding mix remain important factors to monitor. EBLR/MCLR linked loans accounted for 50%/43% of loans.
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SEBI Registration number is INH000000933
