Buy this large-cap bank stock for a target price of Rs 1,300 to earn 17% returns: Anand Rathi

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Stock market outlook

The current market price of the share is Rs 1,108.80 each. The action’s 52-week low level is Rs 763.20 each recorded on June 23, 2022 and the 52-week high level is Rs 1,242 each recorded on October 28, 2021, respectively. In intra-day, the low of the stock is Rs 1,097.60 and the high is Rs 1,118.75, respectively.

Returns on investment

Returns on investment

Over the past week, the stock has jumped 0.12%. While over the past 1 and 3 months, the stock has given positive returns of 7% and 19.39%, respectively. Over the past year, it has returned a positive 11.78%. However, over the past 3 and 5 years, the stock has yielded negative returns of 16.7% and 34.19%, respectively.

Credit growth should be strong

Credit growth should be strong

Given the strong outflows from IIB in the vehicle and MFI portfolios in the first quarter, we expect traction to continue as both industries see revived demand. Business credit is expected to pick up thanks to the government’s infra push until the 2024 general election. We expect overall credit growth to remain strong over the medium term.

Strong margins, lower cost of credit to drive RoA

Strong margins, lower cost of credit to drive RoA

In the context of rising interest rates, the NIM should remain above 4%. Higher margins and the expected moderation in operating expenses would maintain strong operating profits. Based on good operating performance, a recovery in business growth and a benign credit-to-cost cycle, profitability should be robust. We estimate an RoA of around 1.7% each for FY23 and FY24.

Resumption of credit growth, good earnings outlook

Resumption of credit growth, good earnings outlook

According to the brokerage, “Immediately following the first wave of Covid, Indusind Bank was hit hard on both the asset and liability side. Its recovery over the past few quarters has been stellar given that a third of its assets (VF + IFM books) were impacted and the strong run on deposits on the liability side Stress on its VF & MFI books was well below that of the sector and strong pull was seen in deposits. expect credit growth and profitability to be strong due to rebounding demand in MFIs and vehicle finance; bright outlook for corporates thanks to government infrastructure push; strong balance sheet (72% coverage, reserve provision of Rs 30 billion, 1.2% of loans) and strong liquidity and capitalization.”

Valuation & Risks

Valuation & Risks

“Our target of Rs 1,300 on Sep 23 stems from a two leg DDM pattern. This implies a multiple of around 1.7x P/ABV on its FY24e book,” the brokerage said.

According to the brokerage firm, the risk would be a massive slippage in the companies’ book; volatility of MFI book asset quality.

Disclaimer

Disclaimer

The stock was picked from Anand Rathi’s brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

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