Accumulate South Indian Bank; target of Rs 27: Emkay

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Accumulate South Indian Bank; target of Rs 27: Emkay

Emkay Global Financial Services is bullish on South Indian Bank and has recommended accumulate rating on the stock with a target of Rs 27 in its October 17, 2011 research report.

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Emkay Global Financial Services is bullish on South Indian Bank and has recommended accumulate rating on the stock with a target of Rs 27 in its October 17, 2011 research report.

"South Indian Bank, NII grew by 31.1%yoy to Rs2.6bn significantly ahead of our as well as street expectation. The growth in NII was driven by 30%yoy growth in advances (3.9%qoq) and 20bps qoq expansion in NIM's to 3.0%. Moreover the bank did a large part of its advances in the fag end of the last quarter, which also would have contributed around 240mn to the NII during the quarter."

"The strong growth in NII during the quarter was primarily led by 19%qoq growth in gold loan portfolio, while rest of the book remains stable at Rs170mn. As yield on gold loan is higher at 13-14%, the yield on advances on the overall book increased by 99bps qoq to 12.4%, thereby resulting in higher NIM's. With 19%qoq growth in gold loan book, gold loan composition in the overall book has now increased to 26% from 23% in preceding quarter. In case growth in the gold loan portfolio slows down, the rest of the portfolio has to grow at more than 25% to make up for the growth. As the bank is running a higher riskier portfolio, we continue to remain worried. The cost of funds during the quarter increased marginally from 6.9% in Q1FY12 to 7% in Q2FY12 as the bank broadly maintained its CASA mix at 21.3%. Moreover robust growth of 28.4%qoq in NRI deposit further helped in keeping a check on the overall cost of funds."

"We have downgraded earnings by 7.1%/8.1% for FY12E/FY13E for higher provisions and opex. Higher concentration of gold loans (26%) in loan portfolio is key risk to the bank. At CMP, the stock is trading at 1.1x FY13E ABV. The stock historically has traded at an average discount of 60% to sensex, which has now come down to 45%. As a result of the above factors, we revise our price target to Rs27, though maintain ACCUMULATE rating on the stock," says Emkay Global Financial Services research report. 

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