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South Indian Bank (CMP Rs24, TP Rs30, ACCUMULATE)
We spoke to Mr MS Mani, GM, Treasury and International Banking. Here are keytakeaways
Profitability key focus area – ready to pass oncosts
SIB has raised its deposit rates by 50-100bps over YTD and its BPLRand base rate bu 50bps. It may increase base rate once more by 50bps in January2011 to compensate for the rising costs. There would also be ~150bps improvement in CDR over H2FY11.
The total bulk deposits are at Rs63bn (including CDs of Rs12bn)maturing over next nine months. The priority of the bank will be profitability and are ready of forego some balance sheet growth if the costs are prohibitive. SIB will try to maintain the NIMs at 2.8-3.0%.
Growth numbers maintained as of now
SIB has maintained its growth target for the year in tact as of now. The advances growth is likely to be at 27% to Rs200bn and deposit growth at 22%to Rs280bn with CDR of 71.4%.
Rising G-Secyields to have minimal impact
SIB’s AFS portfolio stood at Rs12bn with a duration of<1yearimplying a 1% change in the yields would have impact of ~Rs120mn on profits or4% of FY11 net profit.
NPAs to remain under control
SIB doesn’t have any undeue exposure to the sectors which haveerecently snowballed into controversies. The CRE exposure is at Rs1.2bn (<1%of advances) and no exposure to 2G/3G loans.
Valuations and view
We find the current valuations 1.4xFY12E ABV reasonable looking at the improving RoE profile of the bank. We expect the RoEs to improve from low of 17% in FY10 to 21% in FY11E. We maintain ACCUMULATE rating on the stock.
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