Buy This PSU Bank For 60% Upside: Emkay Global

The PSBs are said to be underperformers in comparison to private counterparts, but NPA situation now seems to be settling amid this scenario and the likely volatile that is here to stay, Emkay Global has given a Buy call on the stock of Indian Bank for a price target of Rs. 220, i.e. an upside of 60 percent from the last traded price of Rs. 137.55 per share on the NSE.

Comments from Emkay Global:

Within the consolidation seen in the PSBs, Indian Bank has been the biggest beneficiary post its merger with Allahabad Bank in terms of liability (CASA more than 40%). " We believe Indian Bank is one of the best mid-cap PSBs with strong capital ratios across cycles and ability to deliver relatively stronger return ratios (RoA/RoE at 0.8%/13%) as growth accelerates. With strong capital buffers in place and overall NPAs trending down, it is gearing up to accelerate growth".

NPA situation at the bank also improving

From the peak levels of 12.7%, NPAs have declined to 9.6%, but the restructuring is at a high at 5% of loans.

Rationale for a Buy on Indian Bank:

"Factoring in the impact of rising G-sec yields on treasury and a slightly higher tax rate from FY23E, we cut the bank's FY23-24E earnings by 5-6% and still expect it to deliver healthy RoA/RoE of 0.8%/13% by FY24E. Valuations remain reasonable post the recent marketwide correction. Hence, we retain Buy with a revised TP of Rs220 (0.7x Dec'23E ABV) from earlier Rs235. Key risks: slow growth/higher NPAs in the SME segment due to a fresh Covid wave and delay in macro pick-up", adds the bank.

Disclaimer:

The stock has been picked from the brokerage report of Emkay Global. 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.