MOSL: INDIAN BANK (Buy)-Focus on core operating parameters continues-Asset quality improves

​Indian Bank: Focus on core operating parameters continues; Asset quality improves

(INBK IN, Mkt Cap USD1.9b, CMP INR329, TP INR382, 16% Upside, Buy)

• INBK reported PAT of INR3.7b (in-line) v/s INR3.2m in 1QFY17, led by strong total income of INR21.1b (+26% YoY led by 48% YoY growth in other income) and controlled opex (11% YoY, -5% QoQ). Provisioning was 52% higher than estimate at INR7.2b, as PCR increased 350bp QoQ to 61.65%.
• Gross slippages increased 14% QoQ, but strong recoveries and upgrades at INR3.5b (v/s INR201m in 4QFY17) led to net slippage ratio of 1.1%, the lowest in seven quarters. Absolute GNPA declined 2% QoQ, while GNPA/NNPA fell 26bp/34bp QoQ to 7.21%/4.05%. Calculated PCR improved to 45.7%. Total stressed book stood at 8.5% of net advances.
• Overall loan book grew 1%/4% QoQ/YoY to INR1.29b. The bank cut down on its corporate book exposure, with the share of corporate loans declining 200bp YoY to 49%. With a comfortable capital position (CET1 11.7%), the bank is well poised to grow its loan book.
• Calculated NIM expanded 27bp QoQ to 2.94% (28bp higher than estimate), driven by lower CoF (5.48% v/s 6.24% YoY), partially offset by lower yield on advances (8.8% v/s 9.25%). NIM is expected to improve further with moderation in interest reversals (INR450m in 1QFY18).