Earnings Update - Indian Bank (INBK IN) - Core performance intact; lower provisioning pushes PAT growth - CSEC Research

- Indian Bank's domestic gross advances showed de-growth (0.1%YoY, 0.3% QoQ) in 3QFY17 to INR 1.26tn. Consequently, the domestic loan mix stood at - Retail segment (+8.2%YoY) - 52.1%; Corporate and Commercial segment (de-growth 7%YoY) 47.9%. The overseas business contributes ~4% of the total advances.

- Bank intends to primarily focus on SME and Retail segment to push the loan book growth. Management revised its loan growth guidance downwards to 2-3% in FY17E from ~10%.

- Global Deposits grew by (5.2%YoY, 3.1% QoQ) to INR 1836bn driven by growth in domestic deposits (5.9%YoY, 3.4% QoQ) to INR 1782bn. Growth was largely driven by increase in CASA base (33.5% YoY, 19.3% QoQ) due to the impact of demonetization taking the CASA ratio to 38.7% from 33.6% in 2QFY17.

- Despite the slowdown in the credit growth, Net interest income grew steadily by 12.2%YoY at INR 12.5bn on the back of margin expansion. NIM increased by 22bps YoY to 2.52% on account of low cost of deposits. Cost of deposits decreased by 77bps YoY to 5.93% led by strong increase in the CASA base and gradual shedding of Term deposits. Yield on advances have dropped relatively lesser by 32bps YoY to 9.13%.

Valuation: The bank has shown healthy operating performance and increasing trend in the CASA base supported by demonetization has helped the margin to expand. We rate the stock an OUTPERFORMER and arrive at a target price of INR 296, implying a PBV of 0.7X FY19E.

Risks: Fresh Slippages from stressed sectors and restructuring of PSU Banks by government.

Shares of INDIAN BANK was last trading in BSE at Rs.265.95 as compared to the previous close of Rs. 272.15. The total number of shares traded during the day was 85972 in over 1648 trades.

The stock hit an intraday high of Rs. 274.7 and intraday low of 265. The net turnover during the day was Rs. 23273995.

Source : Equity Bulls

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