Indian Bank: Strong operating performance with improving asset quality; Reiterate Buy
(INBK IN, Mkt Cap USD2.7b, CMP INR356, TP INR430, 21% Upside, Buy)
- INBK reported core operating profit (excl. treasury gains) growth of 55% YoY to INR 11.3b. However, PAT of INR3b was 38% below estimates, as provisions of INR9.2b were above estimates (included INR4.7b of provisions for MTM losses).
- NII grew 30% YoY to INR16.2bn (6% above estimate) led by 22% YoY loan growth and 3bp QoQ improvement in global margins. NII growth was partially offset by other income (8% YoY decline led by 74% decline in treasury gains of INR0.8b).
- C/I ratio rose sharply by 520bp QoQ to 44.3% mainly led by decline in other income. PPoP growth thus stood at 18% YoY; however, high provisions led to decline in PAT by 19% YoY to INR3b.
- Fresh slippages increased 168% QoQ to INR9.5b led by 4 lumpy accounts (~INR4.5b) slipping from SDR. However, elevated write-offs of INR4.1b and sale to ARCs worth INR3.6b led to QoQ flat GNPA at INR96b. Calculated PCR deteriorated by 172bp QoQ to 48.9% on the back of lower provisions
- The Bank has a total exposure of INR26.4b (8 accounts) towards first list and INR7.4b towards second list (10 accounts). The bank has made total provisions of INR18.2b towards the two lists against a requirement of INR19.8b (by FY18), the balance to be made in 4QFY18.