Recommendation from Banking Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

IDBI BANK LTD. : CHARTING A PROFITABLE ROUTE

HERE IS WHY
✓  Increase in net income
✓  Exploring new business channels
✓  Leveraging technology

I ndia’s banking industry has been stable despite global upheavals, with the government promoting financial inclusion through various initiatives. The industry has grown due to strong economic growth, rising disposable incomes, increasing consumerism, and easier access to credit. Owing to this, our low-price scrip recommendation for this issue is IDBI Bank, which is a full-service universal bank that serves customers from all segments, inheriting its legacy from its predecessor, the Industrial Development Bank of India.

IDBI Bank offers a wide range of banking products and services, including deposits, loans, payment services, and investment solutions. IDBI Bank provides various types of services, including retail banking, corporate banking, agribusiness and microfinance, and SME sector products and services.

In Q4FY24, on a consolidated basis, the bank’s net interest income increased by 12 per cent to ₹3,688 crore as compared to ₹3,280 crore in the same quarter previous year. The total income of the bank also increased by 11.53 per cent to ₹7,955.95 crore as compared to ₹7,133.43 crore in the same quarter the previous year and sequentially increased by 4.96 per cent. The bank’s operating profit declined by 11.99 per cent to ₹2,206.39 crore as compared to ₹2,507.05 crore in the same quarter the previous year while it sequentially declined by 6.32 per cent.

The net profit increased by 37.14 per cent to ₹1,655.09 crore as compared to ₹1,206.82 crore in the same quarter the previous year and sequentially increased by 11.77 per cent. The bank’s asset quality improved and its gross NPA ratio improved to 4.53 per cent as on March 31, 2024 as against 6.38 per cent as on March 31, 2023. Similarly, the net NPA ratio improved to 0.34 per cent as on March 31, 2024 as against 0.92 per cent as on March 31, 2023.

The bank is exploring avenues beyond traditional lending models, such as expanding wealth management services or offering investment products. Maintaining a NIM above 3.50 per cent indicates a commitment to generate healthy profits from core lending activities. The bank aims for a business growth rate of 12 per cent to 14 per cent, with a corporate-to-retail loan ratio of 35:65. Improving asset quality involves gradually bringing down the gross non-performing assets (GNPA) with a recovery target of ₹3,000 crore, demonstrating a proactive approach to addressing bad loans and maintaining a healthy loan portfolio.

Its operational efficiency is maintained by keeping the cost-to-income ratio below 48 per cent, focusing on controlling expenses and increasing efficiency. Leveraging technology and partnerships, such as partnering with fintechs to source personal and education loans, and lateral growth through co-lending in unbanked areas has further strengthened the bank’s financial resilience.

The bank's shares are trading at TTM price-to-book ratio of 1.91 times which is higher than the industry average of 1.78 times, indicating that investors might be paying a premium for its stock. This could be due to its recent positive performance or future growth expectations. While the current return on assets (ROA) of 1.75 per cent is modest, the aforementioned growth triggers suggest the potential for the bank to generate a higher return on its investments in the future. Hence, we recommend BUY.