Buy Indian Bank Ltd For Target Rs. 725 By Yes Securities Ltd
Initiated as BUY in March 2022, INBK multiplies more than 3.5x but still has material upside
Our view – Consistently flagged as a top pick and remains so
Asset Quality – Slippages decline materially on sequential basis to levels not seen since years: Gross NPA additions amounted to Rs 10.16bn for 3QFY25 (Rs 13.84bn during 2QFY25), translating to calculated annualized slippage ratio of 0.7% for the quarter. Recoveries and upgrades amounted to Rs 8.23bn for 3QFY25. AUCA recovery amounted to Rs. 8.81bn for 3QFY25, taking the 9M AUCA recovery to Rs 21bn compared with a full year target of Rs 20bn. Provisions were Rs 10.59bn, down by - 3.6% QoQ and -21.5% YoY, translating to a calculated annualised credit cost of 79bps. The reported credit cost was 47bps for 3Q based on NPA provisions alone, indicating continued standard asset provisioning.
Net Interest Margin - Margin expanded on sequential basis, while management maintained guidance: The whole bank NIM was at 3.45%, up 6bps QoQ and 4bps YoY. Yield on advances was at 8.92%, up by 15bps QoQ and 14bps YoY. The cost of deposits was at 5.18%, up by 5bps QoQ and 19bps YoY. The NIM guidance has been maintained at 3.4-3.5%.
Balance sheet growth – Loan growth was reasonable with management reiterating guidance: Advances are up 1.6% QoQ and 9.7% YoY. Management maintains the loan growth guidance of 11-13% for FY25. There is no challenge on RAM lending and the total loan pipeline is Rs 600bn, including a corporate loan pipeline worth Rs 400bn. Total deposits were at Rs 7,023 bn, up by 1.3% QoQ and 7.4% YoY. The bulk deposit book has de-grown from Rs 1.08 trn to Rs 1.01 trn over the quarter. Raising infra bonds worth Rs 10bn has allowed the bank some freedom on the deposit front
We maintain ‘BUY’ rating on INBK with a revised price target of Rs 725: We initiated INBK with BUY, in our report released in March 2022, and as only our 3rd PSB pick, as our thumbs up to the PSU bank theme. Since then, INBK has returned 254%. We value the bank at 1.3x FY26 P/BV for an FY25/26/27E RoE profile of 16.9/16.7/17.1%.
(See Comprehensive con call takeaways on page 2 for significant incremental colour.)
Other Highlights (See “Our View” above for elaboration and insight)
* Opex control: Total cost to income ratio at 44.6% was down by -56/-234bps QoQ/YoY and the Cost to assets was at 1.9% down by -7/-6bps QoQ/YoY
* Fee income: Core fee income to average assets was at 0.5%, up 1bp QoQ but flat YoY
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