Buy Indian Bank; target of Rs 245: Microsec

Microsec is bullish on Indian Bank  and has recommended buy rating on the stock with a target price of Rs 245 in its January 29, 2013 research report.“Indian Bank was established as a part of Swadeshi movement on 15 August 1907. The bank provides a wide spectrum of banking products and services. It has network of around 2000 branches and 1295 ATMs in all over India.

On global landscape, it has a branch presence in Singapore, Colombo and Jaffna. It also has 240 correspondent banks in 70 countries. Indian Bank has subsidiaries like Indbank Merchant Banking Services, IndBank Housing and IndFund Management Ltd.  Indian Bank is one of the leading bank in rural development which reflects by its numbers of winning awards.

We Initiate Coverage on Indian Bank with a Strong BUY rating. Our rating underpins the bank’s strong business growth momentum, growth in profitability, diversified revenue stream, improving core income or Net Interest Income (NII) led by improving low cost deposits base and increasing credit growth, increasing PAN India presence, improving Net Interest Margin (NIM), improving asset quality with healthy Provision Coverage Ratio (PCR), strong Return Ratios, well capitalized among the PSBs, innovative use of technologies and last but not least bank’s business are in line with regulator’s guideline.

Among the PSU Bank space, Indian Bank has strong fundamentals and thoughtful business strategy which differs from its peers. Indian Bank has a strong Return Ratios. Despite challenging environment, it has delivered RoE and RoA of ~20% and 1.33% for FY12.

We expect the bank may maintain its Return Ratios in the coming years backed by the expectations of healthy loan growth coupled with decline in cost of capital and expenses which leads to improve its profitability. Bank’s continued effort to enhance innovative use of technology may help it to manage its increasing business and transaction volume with lesser manpower.

Among the peers, Indian Bank is one of the cheapest stock amongst PSBs based on P/B. At the CMP of INR202, the stock is trading at FY12 P/BV of 0.80x. The current valuations of 0.73x FY13E and 0.64x FY14E Book Value looks attractive. We recommend a Strong BUY on the stock with a target price of INR245 (0.78x FY14E BV) with an upside of ~21% from the current level with an investment horizon of 12 months,” says Microsec research report.

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