Shares of the state-owned lender have outperformed banking benchmark indices in the last one year on strong earnings. The Nifty PSU Bank index gained 44.42 per cent in the last one year, while the Nifty Bank gained 9.28 per cent during the same period. Brokerages are bullish on PSU lender, Indian Bank. The Chennai-headquartered bank is expected to do well on the back of improved margins, normalization of credit costs and improvement in fees.
MK Global said in a research note, shares of PSU lender Indian Bank A healthy margin trajectory, led by an improvement in fees and normalization of credit costs could drive gradual performance.
The brokerage has maintained ‘Buy’ rating with a target price of 375, with 40.6 percent upside potential from its current levels.
In YTD time, Indian Bank share price has fallen 266.70, a loss of over 9.82 per cent in 2023. The stock hit a 52-week high of Rs. 310 and is a 52-week low. 137.20 respectively. Its market capitalization is 33,209.69 crores.
“The Bank maintains clarity on achieving growth without compromising on margins; Thus, it will refrain from chasing growth on its corporate balance sheet. Consequently, the bank guides for 13-14% credit growth in FY23 (lower than the system at 15-16%) and is expected to maintain a similar trend in FY24, with focus on macro conditions and margins Based on,” MK said in its report.
State-owned Indian Bank reports 102% rise in standalone net profit 1,396 crore in Q3 FY23 on account of strong net interest income. total income of the bank increased 13,551 crore in the quarter from Rs. 11,482 crore in the year-ago period.
Total deposits of the bank grew by 6% YoY 5.97 lakh crore in the December quarter as compared to 5.62 trillion during the same period a year ago. Its total advances grew by 13% 4.51 trillion in Q3 FY23, as against 4 trillion a year ago. Indian Bank’s Current and Savings Account (CASA) deposits registered a 3% year-on-year growth and this 2.41 trillion in December 2022. CASA’s share in deposits stood at 40.4%.
The brokerage noted that in terms of CASA, Indian Bank gained the most from its merger with ex-India based Allahabad Bank, which is 40% higher among peers.
“However, CASA is under pressure for most banks due to TDS as well as competition from NSS (National Savings Schemes) and other alternative investments,” the brokerage said.
Its gross NPA ratio stood at 6.53% as on December 31, 2022, as against 7.3% as on September 30, 2022 and 9.13% as on December 31, 2021. The bank’s net NPA ratio stood at 1% as on December 31, 2022, as against 1.50% as on September 30. 2022 and 2.72% on 31 December 2021.
“We expect the bank to report 0.8% RoA in FY23E and reach 1% by FY24E/FY25E, led by a healthy margin trajectory, improvement in fees (including PSLC) and normalization of credit cost (1.1-1.2 %), high to >2%). Additionally, Indian Bank is one of the few PSBs that is well capitalised, with CET1 at 13.2% (including 9MFY23 gains), thus, unlike peers, there is no risk of equity dilution for investors. The tenure of the current MD & CEO is till September-2024, after which he will be eligible for an extension of 2 years before superannuation. We maintain a buy on the stock with a TP of Rs 375/share (0.8x FY25E ABV),” said Emkya.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint.
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