Buy South Indian Bank; target of Rs 31: Aditya Birla Money

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Buy South Indian Bank; target of Rs 31: Aditya Birla Money

Aditya Birla Money is bullish on South Indian Bank and has recommended buy rating on the stock with a target of Rs 31 in its January 17, 2012 research report.

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Aditya Birla Money is bullish on South Indian Bank (SIB) and has recommended buy rating on the stock with a target of Rs 31 in its January 17, 2012 research report.

"South Indian Bank (SIB), net profit after tax for the current quarter increased 35.7% YoY (7.7% QoQ) to ` 1022.4 mn from ` 753.6 mn for Q3 FY11. The growth in PAT on YoY basis was mainly driven by 33.5% increase in the NII at ` 2734.4 mn (on the back of robust business growth coupled with slight improvement in margins). Added to this lower provisioning during the quarter (-25.6% YoY & -6.9% QoQ) on the back of improved asset quality, also aided in profit growth."

"Net Interest Margins (reported) improved by 5 bps each both sequentially and on a YoY basis from 3.0% to 3.05% driven by higher increase in yield on advances (19 bps) as compared to cost of deposits (11 bps) during the quarter. The higher increase in yield on advances is mainly driven by increasing share of high yielding gold loan portfolio which currently stands at 26.0% of total advances (~` 65 bn as at Q3FY12). Added to this, higher yield on investments during the quarter further helped in improving margins. The management expects the NIM in the current fiscal to be at around current levels."

"Total business of the bank registered a robust growth of ~27.5% YoY (4.4% QoQ) as at Q3 FY12. Deposits grew by 25.3% YoY (2.4% QoQ) from ` 270.0 bn in Q3FY11 to ` 338.3 bn in the current quarter, whereas Net Advances grew by 30.6% YoY (7.3% QoQ) from `191.9 bn to ` 250.5 bn over the same period. The growth in advances was mainly driven by increase in gold loan portfolio which grew by ~` 4.7 bn (7.7% QoQ). Besides this corporate loan book also registered good growth during the quarter. Low cost deposits constitute 25.0% of total deposits as at Q3FY12. The management has guided for 25% growth in total business in the current fiscal and also indicated that going forward the key focus area would be to increase CASA. The Capital Adequacy Ratio (CAR) stood at 12.03% with Tier 1 Capital ratio of 9.61% as on December 30, 2011. The bank is planning to mobilize ` 10.0 bn through qualified institutional placement in Q1FY13 when the market turns favourable."

"We estimate SIB to report an EPS CAGR of 25.2% over FY11-FY13E. ABV is estimated to grow at 17.1% CAGR during the same period. The stock currently trades at 1.1x FY13E ABV and 5.7x FY13E EPS. Going forward, we expect the company to deliver healthy net interest income growth (CAGR 25.0% over FY11-13E) and earnings growth (CAGR 25.2% over FY11- 13E) driven by strong traction in business growth and stable asset quality. We have raised our earning target by 4.8% & 2.6% for FY12E and FY13E respectively on the back of lower than estimated provisioning expenses. Consequently we have raised our target price to Rs 30.6 (1.45x FY13E ABV), thus giving an upside potential of 32.0% from current levels," says Aditya Birla Money research report.    

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To read the full report click on the attachment