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Indian Bank IPO – Reveiw and Analysis

February 6, 2007

Indian Bank was the worst bank during the mid 90s through 2000, when the Government of India decided to infuse capital into the bank which operates mostly in Southern India. With the economic boom and support from the Government, the bank has successfully turned around and growing strongly.

Background:
Since restructuring, Indian Bank has done extremely well. It has 1408 branches and 500 other points of presence for banking. It has 1.5 crore customers mostly in the rural and under-privileged urban areas, which is one of the largest market to bank on these days.

Strengths:
Current Account and Savings Account customers account for mere 35% of Bank’s income. Their is more headroom in this segment for Indian Bank to cash on. Almost all the branches are now computerized and 84% of its business is already under Core Banking Solutions platform. The bank has six asset recovery branches and they have been doing well. Any recoveries will directly add to the bank’s bottomline. Gross and Net NPAs of the bank have declined from 5.1% and 1.9% to 3.4% and 1.3% over the last one year.

Concerns:
37% of its income comes from Trasury operations. However, this has decliend from 50% over the past couple of years. It also has large portion of its securities on Available for Sale block and the bank may have to bear mark to market loss as interest rates rise.

Financials:
Indian Bank reporetd a PAT of Rs 333.9 crore for the Half year ending FY2007 an increase of 42% over the corresponding half in the past FY. The Bank has been profitable since 2002. Annualizing the same, Indian Bank conservatively will report a PAT of Rs 670 crores for FY 2007.

IPO Details:
Price Range – Rs 77 to Rs 91
Retail Quota: 23, 206, 500 * 91 = Rs 211 crore. [Expected to subscribe 10 times]
Fully Diluted Equity – Post IPO = Rs 429.77 crore
We expect an EPS of Rs 15 for FY2007. Indian Bank can be compared to Allahabad Bank, OBC, Corporation Bank which are trading at P/E of 8 and 10.

Recommendation:
Indian Bank is also in tie up with other regional banks to cross sell products. The long term road map set by wizards in the Finance Ministry is to merge and consolidate smaller PSU banks where they find synergy and strengthen the financial system of India. We recommend investors to apply and not to SELL immediately on listing as the gains in the next few years will be much higher.

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