South Indian Bank Q3FY14 Results Update - Advances growth target reduced as bank focuses on asset quality improvement:: EIS

Earnings ahead of estimates: South Indian Bank’s Q3FY2014 results were ahead of estimates asthe
earnings grew by 10.6% YoY (11.5% QoQ) to Rs 1.4 bn mainly led by a lower provision expenses
during the quarter.
NIM decline hurts NII growth: NII declined by 3.7% QoQ (flat YoY) led by a 10 bps decline in NIMs.
NIMs declined to 3% led by a 4 bps increase in CoD (8.1% for Q3FY14) and 2 bps decline in YoA
(12.4%forQ3FY14). CASAratio increasedmarginally to 21.7% from21.3% inQ2FY14.
Business growth remains stable: Business growth remained stable as advances grew by 14.7% YoY
(5% QoQ) whereas deposits grew by 14.7% (2.7% QoQ). Bank hasreduced advances growth targetfor
FY14 to 15%.
Asset quality improves: Asset quality improved sharply as GNPA & NNPA declined to 1.66% and
1.18% respectively from 1.92% and 1.39% inQ2FY14. Bank has given a targetto reduce of GNPA and
NNPAto 1.5% and 1% respectively by FY14.
Lower provision expensessupport earnings growth: Provision expenses declined sharply (95.6% YoY
and 89.8% QoQ) led by a reversal in provisionsfromNPA (Rs 107mn) and reversal of depreciation on
investments(Rs 36mn). PCR improvedto 55.8% from53.5% inQ2FY14.
Valuation: SIB hasreduced its advances growth target asit wantsto focus on better quality advances.
We have accordingly reduced our advances growth target for FY14 and FY15 but draw comfort from
the strong asset quality numbersthat the bank hastargeted. NIMs of the bank are also expected to
remain stable and the return ratios are expected to improve. We expect the earnings of the bank to
grow by 9% over FY13-15. We maintain our Accumulate rating on the stock with a target price of Rs
25 (0.9x FY15E BV).

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