Buy South Indian Bank; target of Rs 37: ICICI Securities

ICICI Securitie`s research report on South Indian Bank

South Indian Bank (SIB) reported better-than-expected Q4FY25 PAT of INR 3.4bn (up 19% YoY; 8% beat), driven by other income. It sustained 1% RoA for seventh consecutive quarter with FY25 RoA at 1.06%. While NII growth was weak (flattish YoY; in line), the bank reported strong other income (mainly recovery from TWO; INR 1.8bn) which was partly offset by rise in provisioning (bulky write-offs, yet stable PCR) and improvement in NNPA (down 33bps QoQ to <1%).

Outlook

We appreciate SIB’s prudent stance to use the hefty one-off TWO recovery (government backed SR from legacy NPA) towards improving NNPA (now <1%). We estimate SIB to deliver 11-12% loan CAGR for FY26/27E with mix moving away from low-yielding corporate loans to core MSME. We estimate 15bps NIM compression YoY and expect moderation in TWO recovery going ahead. Overall, we see the bank delivering 90bps RoA for FY26E and ~95bps RoA for FY27E. Valuations at 0.7/0.6x FY26/27E ABV and 6.3/5.1x FY26/27 EPS appear attractive with improving growth traction and comfortable asset quality. Maintain BUY with TP revised to INR 37 (INR 34 earlier), valuing the stock at 0.8x FY27E ABV (0.75x earlier). Key risks: Higher-than-expected delinquencies and slower traction in MSME. We would also monitor progress in gold loans (19% share) amidst the changing regulatory environment.