Indian Bank nears 52-week high in a weak market; stock up 19% in 3 months

Indian Bank said it is in a better financial health, well capitalised and the asset quality is continuously improving.

Shares of Indian Bank rallied 5 per cent to Rs 295 in Monday’s intra-day trade, on healthy outlook. The stock of state-owned lender traded close to its 52-week high level of Rs 306, which it had touched on December 14, 2022. In comparison, the S&P BSE Sensex was down 0.07 per cent at 59,290 at 02:55 pm.

Indian Bank reported nearly two-fold jump in profit at Rs 1,396 crore in the quarter ended December 2022 (Q3FY23), driven by increase in interest income and decline in bad loans. The net profit of the lender stood at Rs 690 crore in a year ago quarter (Q3FY22).

The bank’s net interest income, too, increased 25 per cent to Rs 5,499 crore as against Rs 4,395 crore in the same quarter a year ago. On the asset quality front, the bank recorded improvement as gross NPAs (Non-Performing Assets) declined to 6.53 per cent of gross advances, as compared to 9.13 per cent at the end of Q3FY22. Net NPAs, too, eased to 1 per cent from 2.72 per cent, in the same quarter a year ago.

Indian Bank remains optimistic of its financial health, on the back of stable asset quality. “Our emphasis would be on improving the low cost deposit base with focus on CASA, strong retail term deposits portfolio via new relationships and target a healthy and quality credit growth in the both RAM and corporate Sector,” the bank said.

However, in the past three months, Indian Bank (up 19 per cent) underperformed its peers. Shares of Uco Bank, Bank of India, Central Bank of India, Punjab and Sind Bank and Bank of Maharashtra rallied in the range of 35 per cent and 100 per cent, during the period. In comparison, the S&P BSE Sensex was down 1.4 per cent in three months.

Analysts at Emkay Global Financial Services said that the outperformance of India's banking sector in 2022 reflected in Q3 as well. However, a gradual consolidation was visible from January 2023 onwards, which they believe to be transient in nature.

Moreover, analysts reckon that apart from growth/margins, acceleration in lumpy corporate resolution could be a supplementary catalyst for banks and, thus, remain positive on the sector.

"We expect Indian Bank to deliver healthy RoA of 0.8-1 per cent over FY23-25E and RoE of 13-15 per cent. This, coupled with a strong capital/provision buffer and management’s stability, make Indian Bank one of the preferred 'buys' among PSBs with a revised target price of Rs 375 (valuing the bank now at 0.8x Dec-24 ABV vs. 0.7x earlier on). Key risks are macro-dislocation hurting growth/asset-quality improvement trajectory and merger of any other PSB given the bank’s otherwise strong fundamentals," the brokerage firm added.