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Performance in line; earnings outlook remains healthy

Asset quality improves further

* Indian Bank (INBK) reported a PAT of INR22.5b in 4QFY24 (up 55% YoY/6% QoQ; in line) led by a healthy other income. NII growth was healthy at 9.2% YoY (in line). Margin improved 3bp QoQ to 3.52% during the quarter.

* Gross loan growth was healthy at 13% YoY/5% QoQ, while deposits rose 11% YoY/5% QoQ. Consequently, the C/D ratio was largely flat at 74.8%. Management continues to focus on profitable growth.

* Fresh slippages moderated to INR12.7b (1.1%). Healthy recoveries/ upgrades and higher write-offs, along with healthy growth, resulted in a 52bp/10bp QoQ decline in GNPA/NNPA to 4.0%/0.4%. SMA book stood at 0.5% of loans during the quarter.

* We raise our earnings estimates by 7% each for FY25/26 and expect the bank to deliver an RoA/RoE of 1.3%/17.7%. Reiterate BUY with a revised TP of INR625 (premised on 1.1x FY26E ABV).

Revenue growth steady; NIM improves 3bp QoQ

* PAT growth was healthy at 55% YoY/6% QoQ to reach INR22.5b (in line), led by healthy other income and controlled provisions.

* NII growth was healthy at 9% YoY/ 3.5% QoQ to reach INR60b (in line). NIM improved 3bp QoQ to 3.52% as funding costs remained in control.

* Other income surged 13.5% YoY/19% QoQ amid a healthy recovery from write-off accounts, while fee income too was healthy at INR9.7b (+6% YoY/+ 14% QoQ) supported by strong treasury gains.

* Opex grew 14% YoY/10% QoQ, as the bank provided for extra wage-related provisioning on retirement and pension benefits. As a result, C/I ratio inched up to 48.0% from 46.9% in 3QFY24. INBK guides for a decline in C/I ratio to 44% during FY25.

* Gross advances grew 13% YoY (up 5% QoQ) to ~INR5.3t, led by broad-based growth across Retail, Agri, and corporate segments. Within Retail, housing and vehicle maintained a strong growth momentum,supporting the overall yields.

* Deposit growth too was robust at 11% YoY/5% QoQ, fueled by faster growth in CASA deposits (up 7.5% YoY/ 8% QoQ). CASA mix, thus, improved 1.1% QoQ to 40.8% for the quarter.

* GNPA/NNPA ratios declined 52bp/10bp QoQ to 4.0%/0.4%, amid controlled slippages (zero slippages in corporate), while recoveries and write-offs continue to be healthy. Specific PCR continues to be strong at ~89.5%.

* SMA 1/SMA 2 book stood at 0.47% in 4QFY24 vs. 0.56% in 3QFY24. The total restructured portfolio declined to 1.7% of loans (vs. ~1.9% in 3QFY24).

Highlights from the management commentary

* Guidance for credit growth stands at 12-13% YoY. The bank will move towards RAM advances, which will have better yields and lower risks.

* Management guides for 3.4%-3.5% (+/- 10-15bp) of NIM. The bank will try to obtain the benefit of the MCLR repricing.

* O/s standard asset provision stood at INR79b (includes all provisions).

* C/I ratio was 48% in 4QFY24, and INBK is working on bringing the C/I ratio down to below 44%.

Valuation and view

INBK reported a steady quarter with healthy but in-line earnings led by robust fee income and controlled provisions. Loan growth remained strong and largely broad based (with healthy growth across all business segments, particularly in Retail, Agri, and Corporate segments), while deposit growth also gained pace. INBK has gradually raised its MCLR-linked loans, which should provide cushion to its margins, particularly as the rate cycle turns. Management has guided healthy margins at 3.4- 3.5% for FY25. The bank expects this growth trend to remain steady and it will continue to focus on profitable growth. Asset quality ratios improved further as the bank maintained the best-in-class coverage ratio, which, along with a low SMA book, provided comfort on incremental credit costs. We raise our earnings estimates by 7% each for FY25/26 due to healthy margins, contained opex, and provisions as well as expect the bank to deliver an RoA/RoE of 1.3%/17.7%. Reiterate BUY with a revised TP of INR625 (premised on 1.1x FY26E ABV).

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