Buy Indian Bank Ltd for the Target Rs 1,000 by Emkay Global Financial Services Ltd
INBK maintained strong operating performance in 2QFY27 too, with advances growing 16.4% yoy, NII up 17.8%, and PAT rising 14.7% to Rs34.6bn. Broadbased RAM growth of 17.7% and improving asset quality, with GNPA/NNPA at 1.61%/0.14%, underpin the bank’s growth trajectory. Management raised guidance on FY27 advances growth to 13-14% and on deposit growth to 11- 12%, while guiding for 5-7bps NIM expansion in 3QFY27, supported by reporate transmission and lagged deposit repricing. However, some of the reported loan growth benefited from the Rs210bn of FCNR(B) mobilization. The bank has cumulatively provided Rs25bn toward ECL against an estimated ECL impact of Rs35bn, leaving potential incremental provisioning of Rs10bn, apart from any impact from HTM valuation changes. We expect INBK to deliver a superior ROA of ~1.2%/ROE of 16-17% 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 TP of Rs1,000, valuing the bank at 1.5x Sep-28E ABV.
Healthy Credit growth and expected NIM expansion
INBK maintained healthy credit growth with advances up 16.4% yoy led by 17.7% broadbased RAM growth, while deposits grew 12.5%. FCNR(B) mobilization of Rs210bn supported loan growth and enabled substitution of high-cost bulk deposits. Still, Mgmt is confident of sustaining growth and has raised FY27 guidance on advances growth to 13- 14% from 11-13% and on deposit growth to 11-12% from 9-11%; this was supported by a Rs630bn corporate credit pipeline, of which Rs300bn is sanctioned and awaiting disbursement. NIM rose by 8bps yoy on a favorable loan mix, with Mgmt expecting 5- 7bps more expansion in 3QFY27, on repo rate transmission and deposit repricing.
Asset Quality continues to improve
Slippages were contained at Rs13.5bn/0.9% of loans; this, coupled with higher writeoffs, led to continued reduction in GNPA ratio to ~1.6% and NNPA at a system-low of 0.14%. The improvement was supported by a decline in SMA ratio to 4.19% from 7.35% a year ago, with Management reporting no material stress across the retail, agriculture, or MSME portfolios. Standard asset provisions increased to Rs18.8bn from Rs7.3bn in 1QFY27. PCR remained strong at 98.2%. INBK has cumulatively provided Rs25bn toward ECL against an estimated ECL impact of Rs35bn, implying potential additional provisioning requirement of Rs10bn over coming quarters. Any HTM valuation impact would be incremental to the Rs35bn ECL estimate.
We retain BUY on INBK; our TP of Rs1,000 is unchanged
We expect Indian Bank to deliver a superior ROA of ~1.2%/ROE of 16-17% 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 TP of Rs1,000, valuing the bank at 1.5x Sep-28E ABV. Key risks: macro dislocation hurting growth and asset quality; merger of any other weak PSB with INBK.
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