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  • CMP : 409.5 Chg : -0.60 (-0.15%)
  • Target : 335.0 (12.04%)
  • Target Period : 12-18 Month

10 May 2023

Modest Q4; trigger for sustained RoA uptick to be watched

About The Stock

Indian Bank is one of the largest and among the better performing PSU banks in India with a total business of over ₹ 11 lakh crore.

  • Pan-India presence with strong branch network of 5787 domestic branches
  • Diversified loan mix with RAM (retail/agri/MSME) forming ~60% to book

Indian Bank reported a mixed operational performance.

  • Gross advances grew 13.9% YoY to ₹ 473586 crore. Deposits were up 4.6% YoY with CASA growth at 5% YoY
  • NII was up 29.5% YoY, 0.2% QoQ. NIMs declined 15 bps QoQ at 3.6%
  • GNPA down 58 bps QoQ to 5.95%. R/s book was at 2.4% of total loan book
What should Investors do?

Outlook on credit growth and margins remains comfortable. Moderation in credit cost is expected to be offset by normalised taxation. However, levers for further improvement in return ratio remain unclear with sustained traction to act as a re-rating catalyst.

  • We downgrade the stock from BUY to HOLD rating
Target Price and Valuation

Indian Bank is expected to deliver credit growth largely in line with industry and RoA of ~0.9% in FY25E. Thus, we value the bank at ~0.8x FY25E ABV and maintain our target price of ₹ 335 per share.

Key Triggers for future price performance
  • Credit growth guidance of 10-12%, driven by RAM segment is seen aiding business and margins
  • Improvement in CD ratio and increase in proportion of RAM portfolio to partially offset pressure on margins amid repricing of liabilities
  • Moderation in credit cost amid healthy buffer seen to be offset by resumption of normalised taxation
  • Given anticipation of steady margins and normalised taxation, RoA is expected to witness a gradual improvement at 0.8-0.9%
Alternate Stock

Apart from Indian Bank, in our coverage we also like SBI.

  • SBI is a public sector bank and also the largest bank in India with a balance sheet size of over ~ ₹ 52 lakh crore
  • BUY with a target price of ₹ 750

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 3 Year CAGR(FY20-FY23) FY24E FY25E 2 Year CAGR (FY23-FY25E)
NII 7,606.4 15,665.9 16,728.0 20,225.5 38.5 22,109.2 23,853.5 8.6
PPP 6,498.0 11,395.6 12,716.9 15,270.5 33.0 16,556.6 17,694.0 7.6
PAT 753.4 3,004.7 3,944.8 5,281.6 91.4 6,698.0 7,469.1 18.9
ABV (|) 249.3 212.2 261.6 288.2 - 350.3 400.6 -
P/E 24.2 11.2 9.4 7.1 - 5.6 5.0 -
P/ABV 1.2 1.4 1.1 1.0 - 0.9 0.7 -
RoA 0.3 0.5 0.6 0.8 - 0.9 0.9 -
RoE 4.3 9.8 12.1 14.7 - 13.1 12.9 -
Source: Company, ICICI Direct Research

Variance Table

  Q4FY23 Q4FY22 YoY (%) Q3FY23 QoQ (%)   Comments
NII 5,508 4,255 29.5 5,499 0.2   Sequentiall fall in NIMs impacted growth
NIM (%) 3.59 2.87 72 bps 3.74 -15 bps   Yields were largely flat on QoQ basis at 8.17%
Other Income 1,994 1,573 26.8 1,716 16.2    
Net Total Income 7,502 5,828 28.7 7,216 4.0    
Staff cost 2,220 1,949 13.9 1,991 11.5   Staff cost partly increased due to wage revision provision of | 251 crore.
Other Operating Expenses 1,267 201 531.6 1,163 8.9    
PPP 4,016 2,738 46.7 4,061 -1.1    
Provision 2,563 1,914 33.9 2,516 1.9   Credit cost improved to 96bps vs. 141 bps in Q3FY23 
PBT 1,453 824 76.3 1,546 -6.0    
Tax Outgo 5.3 -160.6 -103.3 149.9 -96.5    
PAT 1,447.3 984.2 47.0 1,395.8 3.7   Lower tax aided earnings growth
Key Metrics              
GNPA 28,179.5 35,214.0 -20.0 29,484.0 -4.4   Slippage ratio jumped from 1.2% to 2.4% QoQ
NNPA 4,043.1 8,849.0 -54.3 42,710.0 -90.5    
Advances 4,73,586.0 4,15,625.0 13.9 4,51,658 4.9   Credit growth guidance steady at 10-12% YoY 
Deposits 6,21,166.0 5,93,618.0 4.6 5,97,114 4.0    


Q4FY23 Earnings Conference Call highlights

  • FY24 Guidance – Credit growth to be 10-12% YoY (auto – 28% YoY, gold – 20% YoY), deposit growth to be 8-10% YoY. NIMs to be at ~3.15%. GNPA <5%
  • MCLR linked loans increased from 56% in December 2023 to 59% in March 2023. Total 40% of the loan book is linked to one-year MCLR
  • Out of 250 bps increase in repo rate, the bank has passed on the rates to its customers. Also, 170 bps in housing, 180 bps in auto, ~190 bps in gold segment
  • Interest reversal during the quarter was | 236 crore vs. | 139 crore in Q3FY23
  • The bank is expected to spend | 500-600 crore on IT infra in the coming year
  • ECLGS loans outstanding was at | 7200 crore vs. | 11800 crore
  • Standard asset provisions were at | 6000 crore. Wage provision of | 177 crore vs. | 75 crore in Q3FY23
  • Slippages – Out of total MSME slippages of | 1343 crore, | 700 crore came from restructuring book and | 110 crore from the ECLGS book
  • The bank is likely to sell | 6200 crore of book to NARCL on which ~95% provisions have already been made so recoveries are expected to be better than previous quarters
  • The bank has opened 25 branches dedicated to mid-corporates
  • LCR was at 158% with excess SLR of | 35000
  • Effective tax rate during the year was ~11%, which, going ahead, should be back to ~25%




I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA, Pravin Mule, MBA, M.com, Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.               


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