Broker’s call: Indian Bank (Buy)

Target: ₹686

CMP: ₹544

Improved operating performance and moderate provisions led to Indian Bank’s strong profitability, with RoA up 6 bps q-o-q to 1.39 per cent. Headline asset quality and PCR improved. Ahead, we expect slippages to be modest. With stress from the legacy book recognised, the focus now shifts to profitability.

Lower slippages and higher write-offs led to headline asset-quality improvement, with GNPA/NNPA sequentially declining 22bps/6bps. Q3 slippages were ₹1,020 crore (0.8 per cent of loans). Negligible slippages in corporate drove down overall slippages. The standard restructured book was ₹6,670 croe (down 6.5 per cent q-o-q), about 1.2 per cent of loans.

With a pick-up in loan growth from current levels and a softer slippage run-rate, credit costs are likely to be modest. Stable margins, strong fee income and moderate opex would help maintain decent operating performance.

Strong operating profits and modest credit costs would lead to robust medium-term profitability. We expect the bank to deliver a sustainable about 1.2 per cent+ RoA in the medium term.

Our target price of ₹686 is based on the two-stage DDM model. This implies a around 1.1x P/ABV multiple on its FY27e book.

Risks: Lumpy slippages from the corporate book; less-than-expected loan growth.