MOSL: INDIAN BANK (Buy)- Strong operational performance with asset quality improvement

​Indian Bank:Strong operational performance with asset quality improvement

(INBK IN, Mkt Cap USD2.7b, CMP INR377, TP INR438, 16% Upside, Buy)

INBK reported PAT of INR4.5b (13% beat) v/s INR4.05b in 2QFY17, led by strong revenue growth and controlled operating expenses.

• NII grew 21% YoY to INR15.4b (5% beat), led by 13% YoY loan growth and a 12bp QoQ improvement in the global margin. This, supported by healthy 22% YoY growth in other income (36% YoY growth in core fees), helped deliver total revenue growth of 21% YoY.
  
• C/I ratio moderated 160bp QoQ to 39.1%, led by control on both employee and other opex, while management guided for a further improvement in the C/I ratio to 35%-37% by FY19. PPoP growth thus stood at an impressive 37% YoY; however, high provisions and an elevated tax rate against last year's lower base dragged net earnings growth to 11% YoY.
  
• Fresh slippages declined 50% QoQ to INR3.56b. PCR improved by 500bp QoQ to 45.7% (65.4% including technical write-offs) on the back of higher provisions. During the quarter, the bank provided INR1.19b toward IBC-related accounts (same amount needed for 3Q & 4Q), while it has total exposure of INR27b spread over eight accounts toward the RBI's first list. INBK needs to provide another INR1.35b toward the RBI's second list (total exposure: INR8.13b). The bank has guided for a further improvement in PCR to 66-68% by FY19, while the NNPL ratio is likely to decline to < 3%. Total net stressed book stands at ~7.8% of advances.
  
• Overall loan book grew 13%/8% YoY/QoQ to INR1.39t, while deposits grew 12% YoY/4% QoQ, led by healthy accretion in CASA deposits. CD ratio thus increased by 250bp QoQ to 70.1%.