Buy South Indian Bank; target of Rs 40: Prabhudas Lilladher

Prabhudas Lilladher's research report on South Indian Bank

SIB earnings were below estimates with PAT of Rs1.14bn (PLe: Rs1.24bn) on weaker operating performance. Bank's slippages were higher at Rs6.14bn than expected due to implementation of RBIs rules on treatment of restructured assets. These  were  majorly from corporate and 50% from the restructured book, but asset quality deterioration was contained on sale of NPA to ARC. Management has guided much lower slippages and credit cost going forward, while continue to be positive on delivering strong loan growth & steady NIMs.

Outlook

Lower PCR of ~41% can be of risk to higher provisions but some recoveries & lower slippages can help improve PCR. Retain BUY with TP of Rs40 based on 1.4x Mar-20E ABV.