Motilal Oswal is bullish on South Indian Bank has recommended buy rating on the stock with a target price of Rs 38 in its research report dated January 10, 2018.
Motilal Oswal's research report on South Indian Bank
SIB's reported PAT increased 3% YoY to INR1.15b, beating our estimate by 11%, as provisions of INR1.5b were 25% below our estimate. PPoP declined 28%/12% QoQ/YoY, led by a sharp fall in other income (treasury gains declined 91% YoY due to an increase in bond yields, while the base quarter had low yields due to the impact of demonetization). NII grew 1%/22% QoQ/YoY, driven by 5%/17% QoQ/YoY advances growth and 22bp YoY NIM expansion. However, on a sequential basis, NIM contracted 7bp to 2.88% with a fall in MSME yields, as the bank is increasingly looking at greater collateral cover. Opex growth was controlled at 5%/13% QoQ/YoY (employee expenses were up 6% YoY). CI ratio increased to 50.6% (v/s 41.3% in 2QFY18). Loan growth of 5%/17% QoQ/YoY was driven by robust growth in retail (+25% YoY) and SME (+25% YoY), while the corporate book grew 3% YoY, in line with the bank's retail-focused strategy. Share of corporate book has reduced to 35.5% of advances compared to 40% in the year-ago period. Slippages came in at INR2.5b (same as 2QFY18). Slippages declined in agriculture (0.18% v/s 0.44% in 2QFY18) and SME (0.18% v/s 0.78% in 2QFY18), but increased marginally to 0.38% in retail (0.34% in 2QFY18). Absolute GNPA increased 0.5% QoQ to INR17.7b, while NNPA declined 3.6% QoQ. GNPA/NNPA in percentage terms came in at 3.4%/2.35%. Other highlights: a) SIB is aiming to raise capital via a QIP with issuance of 200m shares. b) CASA ratio stood at 24.9% (+30bp QoQ). c) The bank issued INR4.9b of Tier II bonds during the quarter.Outlook
Management is focused on building a low-ticket loan book, with steady balance sheet clean-up, which has helped improve asset quality substantially. We roll forward our TP date, and maintain our Buy rating with a TP of INR38 (1.1x Dec'19E BV v/s our earlier TP of INR36.1, based on 1.1x Sep'19E BV).
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