Jan 23, 2018 12:03 PM IST | Source:

Buy South Indian Bank; target of Rs 44: Edelweiss

Edelweiss is bullish on South Indian Bank has recommended buy rating on the stock with a target price of Rs 44 in its research report dated January 10, 2018.

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Edelweiss' research report on South Indian Bank

South Indian Bank’s (SIB) Q3FY18 performance improved anchored by improved growth momentum and steady asset quality. Key highlights: 1) slippages normalised, as expected, to 2.1% versus ~4.0% in past 6 quarters; 2) loan growth momentum improved (up 16% YoY) with sustained buildup on granular portfolio with focus on SME/retail; and 3) opex growth was relatively higher (up 10% QoQ) following wage revision & DA impact (trend likely in other PSU banks as well). Key monitorable—softer traction in CASA (sub-3% growth) at <25%. As highlighted in our earlier note (Retail to drive growth), the strategic exercise—centralisation of processes, getting more granular—has put SIB on a firm footing and is expected to propel core operating profit CAGR of ~30% and generate RoA/RoE of ~0.8%/13.5% by FY20E. Trading at 1.0x FY20E ABV, the stock is attractively positioned from the risk-reward perspective. Maintain ‘BUY’.

SIB’s endeavour to derisk its balance sheet by shifting to the retail segment, stable asset quality, valuations at 1.0x FY20E P/ABV  for RoA/RoE of 0.8%/13.5% (post capital raising) and healthy earnings CAGR of >30% (albeit on low base) over FY17-20E, lend comfort. We roll over to FY20E earnings and peg our target price at INR44 (INR40 earlier).

For all recommendations report, click here

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