This PSU Banking Stock Grew 160% In 3 Years, Buy For Strong 25% Returns, Says ICICI Direct

ICICI Direct maintains the "Buy" on Indian Bank in its PSU Banks- Thematic report published on 22 December 2022. The brokerage has estimated a target price of Rs 265 per share for the stock of the bank. Investors buying the stock today at the current price would likely get decent returns on investments up to 25%, considering the given target price.

Indian Bank is one of the largest and among the better performing PSU banks in India with a total business of over Rs 10.3 lakh crore. Pan-India presence with strong branch network of 5728 domestic branches. Diversified loan mix with RAM (retail/agri/MSME) forming ~62% to book. It is a midcap PSU Bank having a market valuation of Rs 33,745.23 Crore.

Stock Outlook & Returns

The shares of the Indian Bank currently trading at Rs 268.50/share, trading down 4.26% from its previous close. It touched its fresh 52 week high on 14 December 2022 at Rs 306 and it s52 week low on 25 January 2022 at Rs 130.90, respectively.

The stock declined 7.45% in the past 1 week, whereas in the past 3 months it surged 38.09%. In a year, it has given 92.4% positive returns. In 3 years, it has given 159.41% multibagger returns to shareholders. However, in the last 5 years, it has given 30.51% negative returns.

Highlights

Relatively better placed in terms of CaR and PCR.

Despite lowest capital infusion, CaR was elevated at 16.15% and CET1 at 12.26% to enable faster business growth without dilution.

Lower slippages result in moderation in GNPA (7.3% in Q2FY23 vs. peak at ~12.7%). R/s book a bit higher at 3.7% though PCR is comparable to larger peers at 80.7%.

Steady margins at 3-3.3% and relatively superior efficiency (CI ratio at 44.27% in Q2FY23) to aid RoA.

Advance growth regaining momentum (13.5% YoY in Q2FY23) with healthy CASA ratio at ~41%.

Buy for a target price of Rs 335/share

Continued healthy credit momentum coupled with a gradual improvement in asset quality keeping credit cost lower to aid RoA. Further, a healthy liabilities franchise and relatively superior efficiency and capital adequacy are expected to aid improvement in RoA. "We maintain our BUY rating on the stock. We value the bank at ~0.8x FY25E ABV and revise our target price from Rs 300 to Rs 335 per share," the brokerage has said.

Key triggers for future price performance:

Credit growth guidance of 10% driven by RAM segment (12-13% growth) to also aid earnings momentum.

Improvement in CD ratio and gradual transmission of rate hike to keep margin trajectory steady at 3.2-3.25%.

Recoveries are in line with what the management had guided for in FY23E. Hence, credit cost of <2% is achievable.

Expect return ratios to improve gradually and, thus, aid valuations.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.