RESULT UPDATE South Indian Bank — Time to trim positions; Ambit

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RESULT UPDATE
South Indian Bank — Time to trim positions
Fundamentals priced in

• Steady credit expansion during the quarter drives 20% NII growth
• Lower treasury profits drag ‘other income’
• Marginal NPA accretion during Q2; asset quality trends remain healthy
• 30% rally over the last month robs incremental upside potential
• Downgrade to ‘SELL’ at current levels with revised TP of Rs27

South Indian Bank declared a surprisingly good set of numbers while declaring its Q2/H1FY11 results with NII exhibiting a 20% YoY growth at Rs1.97bn (ahead of expectations) and net profit exhibiting a 6% YoY growth at Rs770mn (ahead of expectations). Asset quality trends have remained stable through the first half this fiscal with a negligible accretion to NPAs during the quarter.

Valuation and recommendation: We believe that the unusually sharp recent spike in the stock robs investors of any significant incremental upside from current levels. Post- this 29% rally since last month, SIB's multiple discount to other old private sector banks within the system has narrowed substantially. While we roll forward to a Sep’11 target price of Rs26.7, we believe that the fundamentals are fairly priced in and the recent steep run-up in the stock leaves little room for further upside. Hence, we downgrade the stock to ‘SELL’ at current levels.