Target: ₹135
CMP: ₹116.25
The stock continues to outperform on the back of sustained improvement return ratio profile aided by strong asset quality trends. Strong sector tailwinds are supporting overall performance. RoA in H2FY2024 is expected to reach about 1 per cent and is likely to sustain in the near to medium term.
The bank has been highlighting that the quality of loans sanctioned/disbursed in post-Covid times is far superior with very low delinquency. Thus, lower slippages trend is likely to sustain and narrow the perceived gap in underwriting with respect to peers.
We believe the bank is likely to deliver higher growth led by a strong credit pipeline, balance sheet strength has also been improving passing each quarter coupled with some of the new initiatives taken recently like- formation of 18 emerging corporate credit branches to cater to corporate needs in their specific area of operation, signed various MOU for financing large infra projects etc.
At CMP, the stock trades at 0.7x/0.6x its FY2025/FY2026 ABV estimates. We maintain a Buy with a revised PT of Rs. 135, rolling forward our valuation to FY2026.
Key Risks: Economic slowdown due to which slower loan growth and higher-than-anticipated credit cost and lower-than-expected margins