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Jul 16, 2012, 10.06 AM IST
South Indian Bank is a very good buy in Rs 22-23-25 levels from three-four years perspective, says Aashish Tater, Fort Share Broking.
Tater told CNBC-TV18, "South Indian Bank, DCB and many banks which are available in this particular range of Rs 20-60, we have gone and studied how big banks have become very big and how that Rs 70-80 stocks became Rs 250-300 and we try to took a snapshot of those patterns and we felt two things that could benefit and how their model shaped out."
He further added, "They had been slowly growing in terms of branches and secondly, they have been investing on loan books, which was relatively safe and South Indian Bank is a conservative bank with almost 650 branches approximately 637 to be precise and targeting 700 branches by the year end. We feel this is one stock, which is relatively undervalued given the marketcap is Rs 2,800 crore."
"We had gone and studied how banks were acquired, which were in too distressed at much higher valuation than South Indian Bank and the roughly valuation that now we are pegging at is Rs 6.5 crore to Rs 7 crore branch for banks like South Indian Bank on conservative side because it has got good asset quality and there was last quarter where we expected a slippage of one big number, which has now been reversed which the management has guided in last quarter itself. So if you see we are expecting close to Rs 125 crore for this particular quarter and over Rs 550 crore for the full year."
"This is one story, which should be in a bet for three-four years. We have seen Karur Vysya Bank, ING Vysya Bank even PSU banks like UCO Bank, Vijaya Bank from Rs 38, Allahabad Bank, they all shaped out with development into their story and once they reach that more than 750 branches, their valuation got refined and South Indian Bank is the perfect proxy in this particular scenario where we feel given there is a strong support at Rs 22-23, which is because right now the stock is at Rs 25 because of the good expectation from numbers but is a very good buy at this Rs 22-23-25 levels from three-four years perspective."
"If the bank crosses Rs 1,200 by FY15-FY16 because as far basel III norms are concerned, they require roughly around Rs 1,400 crore. So if I adjust that also, shareholders who are buying right now, they would get atleast 20-23% year-on-year (YoY) growth from next three-four years perspective and asset which gives you more than 20% growth from next three-four years perspective, I think it is a blind bet and you have hardly anything to lose on valuation front on these kind of banks. So a win-win situation for long-term players and that is why we have put this in a portfolio bet."
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