Buy Indian Bank - Motilal Oswal

Indian Bank (INBK IN; Mkt Cap USD2.3b, CMP Rs252, Buy)

Indian Bank posted NII of Rs9.3b (v/s our estimate of Rs9.1b) for 1QFY11, up 26% YoY. PAT was up 11% YoY at Rs3.7b (v/s our estimate of Rs3.4b). Gross NPAs increased 94% QoQ (on a lower base).Highlights

- Gross NPAs were up from 0.8% in 4QFY10 to 1.45% while net NPAs increased to 0.76% from 0.23%. Shifting to online system for identifying NPAs, higher slippages from agri and restructured loans led to overall slippages of Rs8.2b (~5.3% annualized slippage ratio) during 1QFY11.

- Outstanding standard restructured loans stood at Rs52.5b (~7.7% of the loan book). Of these, loans worth Rs38b have already completed satisfactory performance of 12 months.

- Loans grew 31% YoY and 9% QoQ (v/s our estimate of ~3% QoQ) to Rs680b while deposits were up 19% YoY and 3% QoQ to Rs910b. C-D ratio expanded to 74% from 71% in 4QFY10. CASA ratio improved to 33.3% v/s 32.9% in 4QFY10.

- NIMs for 1QFY11 were down 17bp QoQ to 3.71%. Higher slippages and lower recoveries led to pressure on margins. Ex interest income on NPA recovery, NII grew 31% YoY.

Valuation and view: We have downgraded our estimates by 10% each for FY11 and FY12 to account for higher slippages and credit cost. Despite the downgrade, we expect RoA to sustain at ~1.3% and RoE at 20%+. The stock trades at 5.9x FY12E EPS and 1.2x FY12E ABV. Maintain Buy.

Source : Equity Bulls

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