Indian Bank (INBK IN) - Improving margins with stable asset quality; maintain OUTPERFORMER - CSEC Research

Improving margins with stable asset quality; maintain OUTPERFORMER

- Indian Bank's gross advances showed a pick-up in growth with a sequential increase of 5% (-0.4%YoY) in 4QFY17 to INR 1.32tn. Domestic loan book grew sequentially by 4.7% to INR 1.26tn led by growth in Retail book (9.7% YoY, 10.1% QoQ). However, Corporate segment registered de-growth (10.5%YoY, 1.2%QoQ). Consequently, the domestic loan mix stood at - Retail - 54.8% & Corporate - 45.2%. The overseas business contributes ~4.3% of the total advances.

- Bank intends to primarily focus on SME and Retail segment to push the loan book growth. Management guided to deliver loan growth of ~12% in FY18E and take the total business to INR 3.5tn by FY18E.

- Global Deposits declined sequentially by (2.4%YoY, -0.6% QoQ) to INR 1825bn on account of redemption of deposits. Consequently, CASA ratio declined to 37.7% vs. 38.7% in 3QFY17. However, CASA base rose significantly (+5.7pps) from 31.9% in FY16.

- Net interest income grew strongly by 22.1%YoY at INR 13.85bn on the back of margin expansion. NIM increased by 32bps YoY to 2.7% on account of low cost of deposits. Cost of deposits decreased by 77bps YoY to 5.71% led by strong increase in the CASA base and gradual shedding of Term deposits. Yield on advances have dropped at lower pace of 38bps YoY to 8.9%. Management intends to take NIM to 3% by FY18.

Valuation: The bank has shown strong performance driven by margin expansion and relatively lower slippages. Well maintained asset quality among PSBs, loan growth trajectory coupled with margin expansion paints a positive outlook for the bank. We maintain OUTPERFORMER rating and upgrade target price to INR 350 (Prev. Target of INR 296), implying a PBV of 0.8X 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.336.9 as compared to the previous close of Rs. 347.4. The total number of shares traded during the day was 383852 in over 5967 trades.

The stock hit an intraday high of Rs. 354.95 and intraday low of 330.5. The net turnover during the day was Rs. 131856126.

Source : Equity Bulls

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