Arihant Capital has given Buy recommendation for Indian Bank with a target price of Rs. 190 in its research report issued on May 16, 2022
Arihant Capital’s research report on Indian Bank
Indian Bank has posted profit of INR 984 cr (-42% YoY/+43% QoQ), led by 23% sequential decline in provisions and tax reversal of INR 161 cr. Despite 4% QoQ growth in advances, NII for the quarter decreased by 3% QoQ while it grew by 28% on YoY basis. Other income declined marginally by 0.5% YoY and grew by 1% QoQ to INR 1,573 cr. Core fee income growth of the bank was strong at 23% YoY/22% QoQ to INR 813 cr. Operating expenses growth was higher at 22% YoY/16% QoQ due to 39% YoY increase in employee expenses as the bank has provided for the entire pension liability provision of INR 465 cr. As a result, cost to income ratio of the bank increased from 44.8% to 53% on QoQ basis. Operating profit growth was lower at 15% YoY/-17% QoQ at INR 2,738 cr was impacted due to higher cost ratio. NIM of the bank moderated by 16bps QoQ at 2.9% due to 19bps QoQ decline in yield on advances.
Outlook
However, due to elevated slippages and higher restructuring book of 4.7%, we need to keep watch on asset quality. At CMP of INR 155, it is trading at cheaper valuation of 0.4x P/ABV to its FY24E. We maintain our Buy rating on the stock with a target price of INR 190, based on 0.5x FY24E ABV of INR 380.