Mohnish Pabrai’s Stock Pick Has Good Upside: Experts

Mohnish Pabrai recently dished out valuable advice on how we can find winning stocks. First, he said that we ought to buy stocks that have “high uncertainty but low risk”. Next, he said that we should only be interested in stocks where “the intrinsic worth is at least 2x the market price of the stock”. This strategy gives us the “margin of safety”. He also emphasized that we must buy stocks that are within our “circle of competence” because that will give us the much-needed conviction and patience in our stock picks.

As if to give us a practical illustration of what he means, Mohnish Pabrai recently bought a huge chunk of 6 crore shares of South Indian Bank. A part of the shares were bought from Renuka Ramnath’s Multiples Equity Fund. Renuka sold the rest of her holdings in South Indian Bank to ace value investor Sankaran Naren’s ICICI MF.

In a recent interview, Renuka Ramnath disclosed that the primary reason she sold South Indian Bank was to return money to her investors.

South Indian Bank reported so-so numbers for Q3FY15. The PAT de-grew by 37.8% YOY, primarily on account of lower net interest income (NII) and higher provisioning. The advances and deposits grew at a moderate pace of 9.2% and 8.5% YOY, respectively. Strong traction was, however, witnessed in the SME loan book which grew by 40.3%, whereas the Corporate book increased by 17% YOY. CASA deposits grew 10.6% YOY with CASA ratio up by 39bp YOY to 21.5% in 3QFY2015. The NIM declined by 10bp QoQ to 2.7%, due to interest reversal of Rs 38cr on account of NPA in 3QFY2015.

However, this may be an opportune time to tuck into the stock because all the negatives are priced in and the future is bright say brokerages.

Motilal Oswal has recommended a ‘buy’ with a target price of Rs. 37 (28%+ upside) on the basis that SIB is focusing on improving the recovery and diversify the loan mix, which will aid earnings in the ensuing quarters.

Prabhudas Liladhar has recommended a ‘buy’ with a target price of Rs. 35 on the basis that the management is confident on better asset quality and focus on CASA which will help will bring back NIMs at 3%.

Angel Broking has recommended ‘accumulate’ with a target price of Rs. 32 on the basis that the valuations of 1.0x
FY2016E ABV has factored in all the negatives.

The fact that ace value investor Sankaran Naren has recently evidenced interest in South Indian Bank is also an indication that things may be turning for the Bank. Another big-ticket investor who has bet heavily on South Indian Bank is self-made Billionaire M. A. Yussuffali. As of 31st December, Yusuffali holds 5 crore shares worth about Rs. 140 crore at the CMP of Rs. 28.