Buy Indian Bank - Q4 FY 2011 Result Update - Motilal Oswal

Indian Bank (INBK IN; Mkt Cap USD2.3b, CMP Rs239, Buy)

Reported NIM for 4QFY11 was stable QoQ at 3.8%. The bank chose to moderate loan growth in a tight liquidity environment to protect margins.

Asset quality has remained stable QoQ. In absolute terms, GNPAs declined by 2% QoQ to Rs7.4b. PCR stood at 84.3% v/s 83% a quarter ago.

The bank revised its estimate towards second pension liability (audited numbers) from ~Rs2.8b to Rs9.6b (now in line with industry average at Rs1m/employee).

In 9MFY11 the management had provided pension and gratuity-related expenses based on earlier estimates considering amortization over five years.

Hangover on account of crystallized liability for pension and CBS NPA recognition is behind. Turn in asset quality could throw up positive surprises on NIM and credit cost in FY12. We keep our FY12 estimates conservative - 15bp drop in margins and ~17% increase in provisions. We estimate RoA at 1.4-1.5% and RoE at 22%+ over FY11-13. The stock trades at 1.1x FY12E BV and 0.9x FY13E BV. Buy with a target price of Rs312 (1.2x FY13E BV), an upside of 30%.

Source : Equity Bulls

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