Target: ₹45
CMP: ₹34.70
Indian Overseas Bank (IOB) had made a remarkable turnaround in its performance after coming out of the Prompt Corrective Action (PCA) imposed by the RBI through sustained improvement in its profitability and capitalisation profile while growing the business at a healthy pace. Through recapitalisation, it was able to increase its provision cover on legacy stressed assets, improve its capital ratios above the regulatory levels. IOB remains sufficiently capitalised with no requirement for regulatory or growth capital in the medium to near term.
IOB’s core equity capital (CET I)/tier I witnessed sustained improvement and stood at 13.99 per cent as on December 31. While the capitalisation profile was supported by past infusions, IOB remained profitable from FY21, leading to healthy internal capital generation. With the rise in the provision coverage ratio (PCR) on stressed assets and the increase in CET (Common Equity Tier) due to improved internal capital generation. Given the high provision cover on legacy stressed assets and the decline in net NPAs (NNPAs), IOB is expected to maintain strong cushions over regulatory requirements.
Q3FY26 turned out to be the best quarter for IOB in recent times with an all-time high of net profit of ₹1,365 crore, up 56.21 per cent year on year, driven by rise in interest income and recovery of NPAs.
We would recommend a BUY with a target price of ₹45 in the next 9-12 months, thus implying a rise of 27 per cent from the current levels.