Home/ Markets / Stock Markets/  Brokerage sees 41% upside in this PSU bank stock. Do you own it?

The shares of the state-owned lenders have outdone the banking benchmark index in the past one year due to there robust earnings. The Nifty PSU Bank index gained 44.42 per cent in the last one year compared with 9.28 per cent rise in Nifty Bank during the period mentioned. Brokerage are optimistic on PSU lender, Indian Bank. The Chennai-headquartered bank is expected to perform well driven by healthy margin, normisalisation in credit costs and improvement in fees.

In a research note, Emkay Global said, shares of PSU lender Indian Bank may perform gradually led by a healthy margin trajectory, improving fees, and normalization of credit cost.  

The brokerage has maintained a 'Buy' rating with a target price of 375, implying a 40.6 per cent upside potential from its current levels.

In YTD time, Indian Bank share price has slipped to 266.70, logging more than 9.82 cent loss in 2023. The stock's 52-week high is Rs310 apiece and 52-week low is 137.20 apiece, respectively. Its market capitalisation is 33,209.69 crore.

“Bank maintains clarity on achieving growth without compromising on margins; thus, it would avoid chasing growth in its corporate book. Consequently, bank guides for 13-14% credit growth in FY23 (lower than the system at 15-16%) and foresees maintaining a similar trend in FY24, based on macro conditions and focus on margins," said Emkay in its report.

State-owed Indian Bank reported a 102% increase in standalone net profit to 1,396 crore in Q3 FY23 owing to stronger net interest income. The Bank’s total income increased to 13,551 crore in the quarter from 11,482 crore in the year-ago period.

The bank's total deposits increased 6% y-o-y to 5.97 trillion in the December quarter as compared to 5.62 trillion during the corresponding period a year ago. Its total advances grew by 13% to 4.51 trillion in Q3 FY23, as against 4 trillion a year ago. Indian Bank’s current and savings account (CASA) deposits recorded a y-o-y growth of 3% and stood at 2.41 trillion in December 2022. The share of CASA to deposits stood at 40.4%.

The brokerage noted that Indian Bank benefited the most from its merger with east-India based Allahabad Bank, in terms of CASA, which stands high at 40% amongst peers. 

“However, CASA is under pressure for most banks due to cannibalization towards TDs as well as competition from NSS (National Saving Schemes) and other alternative investments," the brokerage said.

Its gross NPA ratio was at 6.53% as on 31 December 2022 as against 7.3% on 30 September 2022 and 9.13% on 31 December 2021. The bank’s net NPA ratio was at 1% as on 31 December 2022 as against 1.50% on 30 September 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, improving fees (incl. PSLC) and normalization of credit cost (1.1-1.2%, from a high of >2%). Additionally, Indian Bank is one of the few PSBs to remain well capitalized, with CET 1 at 13.2% (including 9MFY23 profit), thus posing no risk of equity dilution for investors, unlike peers. The current MD & CEO’s term is till Sep-2024, post which he will be eligible for a 2-year extension before superannuation. We retain a BUY on the stock, with TP of Rs375/share (0.8x FY25E ABV)," Emkya said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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Updated: 20 Mar 2023, 06:29 PM IST
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