Accumulate South Indian Bank: target price of Rs26: Angel Broking,

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For 1QFY2012, South Indian Bank (SIB) reported healthy net profit growth of
41.2% yoy (flat sequentially) to `82cr, slightly below our estimates of `86cr.
However, NIM compression was higher than expected, which was compensated
by higher treasury gains and lower-than-estimated provisions. Key highlights of
the results were strong balance sheet growth but with substantial NIM
compression and largely stable asset quality. We maintain our Accumulate
recommendation on the stock.
Healthy business growth but NIM disappoints: The bank’s business growth
continued to register strong traction, with advances growth at 31.2% yoy (8.1%
qoq) and deposits growth at 35.5% yoy (6.4% qoq). The bank’s CASA deposits
grew by relatively lower 16.0%, leading to compression in CASA ratio to 21.5%
from 25.1% in 1QFY2011. However, CASA ratio was stable on a sequential
basis. CASA deposits and low-cost NRE deposits put together formed 26.1% of
deposits. The asset quality was largely stable during 1QFY2012, with absolute
gross and net NPAs rising by relatively lower 2.6% and 5.8% qoq, respectively,
and provision coverage ratio excluding technical write-offs at a comfortable
73.1%. Slippages were flat sequentially at 0.8% (`43cr), which were largely
compensated by higher recoveries. The bank’s capital adequacy remains healthy
at 13.5%, with tier-I CAR of 10.9%.
Outlook and valuation: SIB plans to raise ~`1,000cr during FY2012, which will
enable it to maintain its strong growth, especially in its gold loan business.
Currently, the stock is trading at moderate valuations of 1.2x FY13E ABV. In light
of capital-raising and strong expansion plans, we value the bank at 1.35x FY13E
ABV and maintain our Accumulate rating on the stock with a target price of `26.