Edelweiss is bullish on South Indian Bank has recommended buy rating on the stock with a target price of Rs 44 in its research report dated January 10, 2018.
Edelweiss' research report on South Indian Bank
South Indian Bank’s (SIB) Q3FY18 performance improved anchored by improved growth momentum and steady asset quality. Key highlights: 1) slippages normalised, as expected, to 2.1% versus ~4.0% in past 6 quarters; 2) loan growth momentum improved (up 16% YoY) with sustained buildup on granular portfolio with focus on SME/retail; and 3) opex growth was relatively higher (up 10% QoQ) following wage revision & DA impact (trend likely in other PSU banks as well). Key monitorable—softer traction in CASA (sub-3% growth) at <25%. As highlighted in our earlier note (Retail to drive growth), the strategic exercise—centralisation of processes, getting more granular—has put SIB on a firm footing and is expected to propel core operating profit CAGR of ~30% and generate RoA/RoE of ~0.8%/13.5% by FY20E. Trading at 1.0x FY20E ABV, the stock is attractively positioned from the risk-reward perspective. Maintain ‘BUY’.
SIB’s endeavour to derisk its balance sheet by shifting to the retail segment, stable asset quality, valuations at 1.0x FY20E P/ABV for RoA/RoE of 0.8%/13.5% (post capital raising) and healthy earnings CAGR of >30% (albeit on low base) over FY17-20E, lend comfort. We roll over to FY20E earnings and peg our target price at INR44 (INR40 earlier).
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