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Dolat Capital Report
Indian Bank posted healthy quarter with net interest income growth of 6% YoY, in-line net interest margin at 3.4% (-5 basis points QoQ), moderation in slippages to 1.4%, and low credit costs aiding strong profit after tax beat and return on asset of 1.1%.
Indian Bank continued to make prudential provisions (both generic and specific) in Q3.
Indian Bank's asset quality trends were steady with 50 bps decline in gross non-performing asset QoQ to 4.5% and stable provision coverage ratio at 88%.
Credit costs declined to 1.1% in Q3 versus 1.5% in H1 FY24. With industry best PCR and higher standard asset provisions relative to peers, we build in lower credit costs for FY25/26E.
Margins are expected to be in the 3.3-3.5% range as there remain positive levers to yields. Earnings upgrade of 7% each for FY25/26E is driven by lower credit costs.
We maintain 'Buy' with revised target price of Rs 540 (1.2 times Sep-25E price/adjusted book value) against a return on asset/return on equity of 1.1%/15% for FY25E.
The stock currently trades at 1.0 times price/adjusted book value.
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