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Brokerage sees 41% upside in this PSU bank stock. Do you own it?

On the strength of its profitability, the state-owned lender’s shares have outpaced banking benchmark indices over the past year. In the past year, the Nifty PSU bank stock index increased by 44.42 percent, while the Nifty Bank increased by 9.28 percent. Brokerages are optimistic about Indian Bank, a PSU lender. The bank with its headquarters in Chennai is predicted to perform well thanks to increased margins, a normalization of lending costs, and increased fees.

According to a research report from MK Global, the solid margin trajectory, improved charges, and normalization of credit costs may cause shares of PSU lender Indian Bank to gradually underperform. PSU bank shares

The firm has kept its “Buy” recommendation and set a target price of 375, which represents a possible increase of 40.6 percent from current levels.

Indian Bank’s share price has down 266.70 YTD, losing more than 9.82% in 2023. The stock’s 52-week high and low are respectively Rs. 310 and Rs. 137.20. It has a market value of 33,209.69 crores.

The Bank will refrain from chasing growth on its corporate balance sheet because it is clear that it can achieve growth without sacrificing profitability. Because of this, the bank projects a 13–14% increase in credit growth for FY2023 (down from the system’s 15–16%), and it expects to continue on this path for FY24 by concentrating on macroeconomic factors and margin developments, according to MK’s report.

Due to high net interest income, the state-owned Indian Bank claims a 102% increase in standalone net profit of 1,396 crore in Q3 FY23. The bank’s overall revenue climbed from 11,482 crore in the same quarter last year to 13,551 crore this quarter.

In the December quarter, the bank’s total deposits increased by 6% year over year to $5.97 lakh crore from $5.62 trillion in the corresponding quarter last year. In Q3 FY23, its total advances increased from 4 trillion to $4.51 trillion, a 13% increase. Current and Savings Account (CASA) deposits at Indian Bank increased by 3% annually in December 2022, reaching $2.41 trillion. 40.4% of deposits belonged to CASA.

The brokerage pointed out that Indian Bank benefited most from its merger with Allahabad Bank, which is 40% higher among peers, in terms of CASA. PSU bank shares.

However, the National Savings Schemes (NSS) and other alternative investments are putting pressure on CASA for the majority of banks, according to the brokerage.

On December 31, 2022, it had a gross NPA ratio of 6.53%, down from 7.3% on September 30, 2022, and 9.13% on December 31, 2021. On December 31, 2022, the bank’s net NPA ratio was 1%, down from 1.50% on September 30, 2022, and 2.72% on December 31, 2021.

The bank’s excellent margin trend, improvement in fees (including PSLC), and normalization of credit cost (1.1-1.2%), up to >2%, are expected to help it record 0.8% RoA in FY23E and achieve 1% by FY24E/FY25E, respectively. Additionally, with a CET1 of 13.2% (including gains from 9MFY23) and being one of the few PSBs, Indian Bank is adequately funded. As a result, unlike rivals, investors do not face the danger of equity dilution. The present MD & CEO’s contract is valid until September 2024; following that, he will be eligible for a 2-year extension prior to superannuation. We keep the company as a buy with a target price of Rs. 375 per share (0.8x FY25E ABV),” stated Emkya.

Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of o2help.

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