MOSL: INDIAN BANK (Buy)-Asset quality deteriorates further, expect gradual recovery in earnings
Indian Bank: Asset quality deteriorates further, expect gradual recovery in earnings
(INBK IN, Mkt Cap USD1.6b, CMP INR239, TP INR300, 26% Upside, Buy)
- INBK reported PAT of INR1.5b, significantly below our estimate of INR3.2b due to lower other income of INR4.4b (25% miss). NII grew 6% YoY (-1% QoQ) to INR17.2b (6% below our estimate) due to higher interest reversals of INR1.8b. Margins shrank 9bp QoQ to 2.88% in the quarter.
- Fee income declined 10.2% QoQ to INR2.6b, while forex income was also down 8% QoQ. This, along with treasury profits of INR575m, led to a -19%/4% YoY/QoQ decline in other income.
- Loan book grew 15.4% YoY to INR1.7t, while deposits increased 9.4% YoY to INR2.3t. The share of RAM advances stood at 58.7% (v/s 56.2% in 3QFY18). CASA deposit growth was muted at 7.2% YoY, leading to a decline in the CASA ratio to 35.7% (v/s 36.1% in 2QFY19).
- Slippages remain elevated at INR17.5b (v/s INR22.5b in 2QFY19) due to downgrade of IL&FS exposure of INR6.6, while residual standard exposure on IL&FS stands at INR6.4b. Recoveries/upgrades came in at INR2.2b/INR1.05b. Absolute GNPA/NNPA increased 7.0%/7.2% QoQ to INR132b/INR75.7b. GNPA/NNPA ratio stood at 7.5%/4.4%, while PCR ratio moderated 12bp QoQ to 42.6%.
- Other Highlights: (i) INBK guided for INR10b of gross slippages in 4QFY19. (ii) PCR on the NCLT exposure is 70%. (iii) INBK has a tier-1 ratio of 11.2% and it raised tier-2 bonds of INR6b (Jan-19). (iv) O/s SMA-2 exposure is INR45b, of which ~INR16b is in the corporate segment.
Indian Bank offers deposits, loans and services. The Bank's segments include Treasury, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations. The Company offers products under various categories, including agriculture, corporates, personal/individual, business, professional self-employed, small and medium-sized enterprise (SME), cards, education, Non-Resident Indian (NRI), property and technology. Its deposits include savings bank (SB) account, such as SB Vikas Khata, SB Platinum, SB Power, SB Silver and SB Gold; current account, including Premium Current Account and IB i-Freedom Current Account; term deposits, including fixed deposit, re-investment plan, insured recurring deposit, variable recurring deposit and facility deposit, and NRI accounts, including Non-Resident Ordinary Account. It also offers services, which include premium services, insurance services and e-payment of indirect taxes. The Bank has approximately 70 specialized branches across the country.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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