Buy South Indian Bank; target of Rs 31: ICICI Securities

ICICI Securities research report on South Indian Bank

Despite muted loan growth, South Indian Bank (SIB) reported a strong Q2FY24 with PAT at INR 2.75bn (97bps RoA), driven by benign credit costs while asset quality improved. In the last three years, SIB has come a long way and we believe the ongoing transformation journey should re-accelerate under Mr Seshadri. Notwithstanding some pressure on near-term NIMs, we see stable FY25 YoY NIMs aided by favourable mix and low LDR. We revise our earnings estimates upwards and now see ~90bps RoA for FY25E/26E with RoE rising to ~14-15%.

Outlook

We raise our TP to INR 31 (vs. INR 28), valuing the stock at ~0.9x FY25E ABV. We await more clarity on the MD & CEO’s asset growth/mix strategy and journey towards 1% RoA. Key risks: Hiccups, if any, in MD & CEO transition and rise in slippages.