Buy South Indian Bank; target of Rs 26: Cholamandalam Securities

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26 Aug, 2025 12:21

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SIB’s loan book showed a steady growth of 18.8% YoY in 1QFY19 (1.9% QoQ) in line with our estimates to INR 561.6bn (CSEC estimate of INR 568.18bn). The growth was predominantly led by Retail (29.3% YoY, 10.7% QoQ) and SME & Agriculture (18.4%YoY, 0.5% QoQ) segments. Management has guided that their focus will continue to be on these segments and the loan book would grow at ~20% in FY19E.  Within the Retail portfolio, growth was largely driven by Manufacturing (37.6% YoY, 14.8% QoQ) and Service & Traders (35.1% YoY, 14.8% QoQ) segments. Gold loans recorded a healthy growth of 5.8% YoY vs. a slower growth of 2.7% FY18.  Deposits grew by 10.2% YoY (0.6% QoQ) to INR 725bn (vs. CSEC estimate of INR 738bn), with Savings account deposits growing at 10.5%YoY (6.1% QoQ). Overall CASA grew by 24.7% YoY. However, the share of CASA in total deposits fell to 24.7% from 25.2% in 1QFY18, due to higher growth (11%YoY) witnessed in Time Deposits and de-growth in current account deposits (-3.9% YoY). NRI Deposits constituting 27% of total deposits grew by a healthy 12.9% YoY (4.1% QoQ).  Net Interest Income growth was muted at 7.3% YoY (0.5% QoQ) and it stood at INR 4.9bn (vs. CSEC estimate of INR4.7bn), due to a 56bps YoY (-27bps QoQ) fall in yield on advances. Cost of funds also declined by 4bps YoY to 5.58% (up18bps QoQ). Consequently, NIMs dipped by only 20bps YoY (-13bps QoQ) to 2.6%. Going forward, the management expects the NIM to reach 2.8 by FY19E, owing to the revision in MCLR rates in May (+20bps) and June (+5bps) 2018, which will be reflected in NIMs in another 6 months.

The Stock currently trades at 0.7x P/ABV of FY20E. SIB continues to shift its focus from corporate loans towards Retail & SME loans which would help them contain the credit costs and maintain the margins at current levels. Fresh slippages in this quarter is a disappointment, however the management is confident about recovering the dues in FY19 itself. We maintain a BUY rating on the stock and revise the target price to INR 26, implying a 1X P/AB FY20E.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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