Stock Market the Result Update on Indian Bank for 1QFY2012

Stock Market the Result Update on Indian Bank for 1QFY2012 with an Accumulate recommendation and a Target Price of `232 (12 months).

For 1QFY2012, Indian Bank reported a decline of 7.3% qoq in its net profit to `407cr, mostly in-line with our estimates. Healthy growth momentum combined with stable asset quality was the key highlight of the result. We recommend an Accumulate rating on the stock.

Strong growth in business; Asset quality remains stable: Net advances for the bank grew strongly by 9.6% qoq and 21.3% yoy to `85,510cr, while deposits grew by 4.4% qoq and 21.3% yoy to `110,425cr. CASA ratio as of 1QFY2012 stood at 31.0%, up 20bp from 30.8% in 4QFY2011. The effect of rising interest rates was felt in 1QFY2012, with cost of deposits increasing by 90bp qoq to 7.2%. However, yield on advances increased by 101bp qoq to 10.9%, leading to a sequential increase of 11bp in reported NIM to 2.5%. During the quarter, non-interest income decreased by 8.2% qoq (down 29.9% yoy) to `249cr. Treasury income was strong at `47cr (`5cr in 4QFY2011), while income from recoveries was weak at `19cr (`89cr in 4QFY2011). For 1QFY2012, the bank’s operating expenses increased by 3.9% qoq to `498cr, driven by a 16.0% sequential rise in employee expenses to `359cr.

Outlook and valuation: The bank’s relatively higher rural and semi-urban presence has enabled it to maintain reasonable cost of funds, resulting in more resilient NIMs than other mid-size PSU banks. At the CMP, the stock is trading at 5.4x FY2013E EPS of `39.8 and 0.9x FY2013E ABV of `244.3, which is below our target multiple of 1.0x FY2013 ABV. Hence, we recommend an Accumulate rating on the stock with a target price of `232, implying a 9.0% upside from current levels.