MOSL : INDIAN BANK: Operating performance healthy; asset quality improves

INDIAN BANK: Operating performance healthy; asset quality improves

(INBK IN, Mkt Cap USD2.8b, CMP INR178, TP INR210, 18% Upside, Buy) 

• Indian Bank (INBK) posted a steady quarter with net profit rising 3% YoY aided by healthy NII and lower opex (as 4QFY22 had a one-off impact of pension liability). NIM expanded while business growth showed healthy traction.
• Asset quality ratios improved; however, slippages and restructured book at 4.2% of loans remained elevated.
• We increase our FY23E/FY24E PAT by ~12%/14%, respectively, as we revise our other income, opex and provisioning assumptions. We estimate FY24E RoA/RoE at 0.9%/14.7%, respectively. Maintain BUY with a revised TP of INR210 (premised on 0.6x FY24E ABV).

NIM expands 23bp QoQ to 3.1%; PCR healthy at ~75%

• INBK reported 1QFY23 PAT of INR12.1b (+3% YoY; MOSLe: INR9.2b), led by healthy NII growth (+7% QoQ) and lower opex (-17% QoQ). NII grew 14% YoY to INR45.3b (in line); margin expanded 23bp QoQ to 3.1%.
• Core fee income grew strongly at 35% YoY to INR6.3b; total other income though declined 12% YoY to INR16b, primarily led by treasury losses of INR1.3b (v/s gain of INR5.6b in 1QFY22).
• Opex growth was modest at 7% YoY led by moderation in employee expenses (4QFY22 included a one-off pension liability cost of IMR4.65b). Thus, PPoP grew 4% YoY to INR35.6b (20% beat) and consequently, the C/I ratio moderated to ~42% in 1QFY23.
• On the business front, gross advances rose 9% YoY (~2.3% QoQ) to ~INR4.2t fueled by healthy growth in the Retail portfolio (+14% YoY) and Agri portfolio (+13% YoY). The corporate book declined 2% YoY (+1% QoQ). Deposits grew ~8% YoY (+2% QoQ), led by 4% QoQ decline in CASA deposits. Thus, the CASA mix moderated 100bp QoQ to 40.7% in 1QFY23.
• On the asset quality front, slippage stood elevated at INR30.9b (~3.4% annualized). However, healthy write-offs aided asset quality with the GNPA/ NNPA ratio improving 34bp/15bp QoQ to 8.1%/2.13%, respectively. PCR was healthy at ~75%.
• The SMA 1/2 book (>INR50m) stood at 0.61%. The total restructured portfolio was elevated at 4.2% of loans (v/s ~4.7% in 4QFY22). Collection efficiency moderated to 94% in Jun'22.