May 07, 2013, 10.54 AM IST | Source: CNBC-TV18

Buy South Indian Bank, advises SP Tulsian

SP Tulsian of sptulsian.com advised buying South Indian Bank with a six months view.

SP Tulsian of sptulsian.com advised buying South Indian Bank  with a six months view. He expects a price of about Rs 32 during that period.

Tulsian told CNBC-TV18, "The reason for picking up South Indian Bank is the results. There has been some deterioration in net non-performing asset (NPA) that has risen by about 10 basis points, but the gross NPA reduced by 26 bps on a sequential basis."

He further added, "If I take the shareholding pattern there are no identified promoters to the bank, 63 percent of the stake is held by the institutional investors and foreign institutional investors (FII)."

"The bank has strong presence in southern parts of the country, with 750 branches and 800 automated teller machines (ATM). I am sure that maybe in next couple of months when the bank guidelines or the bank license talk will become active, this bank will be seen as a mergers and acquisitions (M&A) play. Yesterday we have seen Karnataka Bank moving on that theme. Yesterday that stock was in limelight and if you recall there are few banks like South Indian Bank or Karnataka Bank which is widely talked as an immediate takeover target or as an immediate M&A play."

He further said, "But apart from that even if you take on a fundamental basis, the EPS for FY14 has been at Rs 4.03 which was at Rs 3.50 for FY12. So the bank has shown a growth of about 15 percent on the bottom-line. Going forward if you see the branch additions are also happening - about 30-40 branches are added by the banks every year. So I expect that for next year Rs 4.5 EPS can be expected."

"I expect the improvement in the asset quality is also likely to happen with the net NPA maybe falling to about 60 bps in due course of time. If you take the price-to-book the present book value is about Rs 21. Going forward on the current year’s estimates it will be Rs 24-24.50 and the share is ruling at a price-to-book of 1. On a PE basis the present EPS of Rs 4 plus discounts it by about 6 times and on the forward it is about 5-5.5 times. The dividend also has been good. Bank has paid 70 percent dividend that is 70 paise on Re 1 face value," Tulsian added.

"So taking all this into account with a PE of 6 times, price-to-book of almost 1 and with a reasonable growth of 15 percent in the bottom-line, I think the stock seems to have bottomed out and one can expect a price of about Rs 32 in six months. The six months time limit has been given as I expect the things to start heating up on the bank license norms and the M&A talk. So this seems to be a good banking stock to buy now."

Disclosure: He does not hold the above stock.

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