Buy South Indian Bank; target of Rs 10: Prabhudas Lilladher

Prabhudas Lilladher's research report on South Indian Bank

SIB’s earnings were below our estimate at Rs650mn (PLe: Rs794mn) on back of higher provisioning on overdue loans, not classified NPAs due to court ruling and legacy NPAs. Positive outcomes in 2Q21 were (i) better NII growth of 14% YoY led by tailwinds from lower cost of deposit and (ii) better retail liability pickup. Negligible slippages helped asset quality but otherwise the bank identified Rs1.36bn of NPAs and made adequate provisioning on same, taking PCR to 48% (excl. technical w.off). We believe provisions should remain elevated as slippages of Q2 & from COVID impact will hit asset quality, which should bring down PCR to 42-43% in FY21.

Outlook

We adjust our numbers with higher slippages, credit cost and take impact of restructuring into consideration. Accordingly, retain BUY and rollover to Sep-22 ABV with revised TP of Rs10 (from 11) based on 0.5x multiple.