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South Indian Bank
South Indian Bank registered healthy 41.2% yoy net profit growth for 1QFY2012 to `82cr.
The bottom line was marginally below our estimates due to considerably lower NII, which
was compensated by higher other income and lower operating expenses. Reported NIM
declined by ~30bp qoq to 2.77% on account of a sharp increase in cost of deposits of
~100bp qoq. The 85bp qoq rise in yield on advances could not completely compensate
for the pressure on cost of deposits. Calculated NIMs were down by sharp 41bp qoq.
Business growth continued to be strong with advances growing by 31.2% yoy (8.1% qoq)
and deposits rising by 35.5% yoy (6.4% qoq). CASA deposits grew by relatively lower
16.0%, leading to compression in CASA ratio from 25.1% in 1QFY2011 to 21.5% in
1QFY2012. Asset quality was largely stable with gross and net NPA ratios remaining flat
sequentially and provision coverage ratio stable at 73%. The bank made higher standard
assets provisions of ~`14cr compared to `2cr in 1QFY2011 and `6cr in 4QFY2011, on
account of the recent hike in provisioning requirements by the RBI.
Currently, the stock is trading at 1.3x FY2013E ABV, close to the upper end of the bank’s
five-year range, due to strong operating performance in the last few quarters, especially on
the gold loan front, as well as relatively large book-accretive QIP on the cards to capitalise
on the gold loan segment further. We have an Accumulate rating on the stock with a target
price of `26. We may revisit our estimates and recommendation post interaction with the
management.
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