Buy This Mid Cap PSB Stock For 39% Upside Potential Says Emkay Global

Indian Bank has released its third-quarter results, with a net profit of Rs 690 crore, up 34% from the previous quarter. Emkay Global Financial Services Ltd, a renowned brokerage company, has issued a buy call on the stock with a target price of Rs 220 following its positive Q3 results. The shares of this mid-cap public sector bank were trading at a market price of Rs 158 per share at the time of the brokerage's buy call. And, from today's opening price, the brokerage expects the stock to reach the target price in 12 months, implying a 39 percent upside potential.

Q3 results of Indian Bank

Emkay Global has said that "Indian Bank reported a miss on PAT at Rs6.9bn vs. our estimate of Rs8.7bn, mainly due to higher provisions, as the bank shored up its PCR in line with large peers to 72%, including on Srei Infra (100% PCR). Asset quality was a mixed bag, with the GNPA ratio down 43bps QoQ to 9.1%. However, restructuring remains elevated at 5% of loans. The bank claimed that the relapse rate from the restructured book remained low at 3%."

As per the brokerage "Loan growth was moderate at 3% YoY, which the bank expects to improve to ~8% in FY22, calling for better growth run-rate in Q4. NIM improved 14bps QoQ to 3%, mainly due to lower interest reversal on NPAs and yield on the balance with the RBI. Fresh slippages remained elevated in Q3 at Rs27bn (3% of loans) due to higher retail/corporate slippages. Slippages may remain elevated in 4Q in case of Future Retail slips, to which the bank has exposure to the tune of Rs9bn (15% PCR). Factoring in higher LLP, we cut our FY22E EPS by 3%. However, we expect the bank to deliver a healthy RoA/RoE of 0.8%-13% by FY24E."

Buy With A Target Price (TP) of Rs 220

Emkay Global has claimed that "With strong capital buffers in place and an improving economic environment, the bank is geared up for growth. Factoring in higher LLP, we cut our FY22E EPS by 3%. However, we expect the bank to deliver a healthy RoA/RoE of 0.8%-13% by FY24E. Retain Buy with a TP of Rs220, based on 0.7x Dec'23E ABV."

The brokerage has also said that slow growth due to a delay in macro pick-up and higher-than-expected NPA formation in the SME segment can be the stock's potential risks.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global Financial Services Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.