Raamdeo Agarwal loves banking stocks because the restricted environment in which they operate gives them a virtual monopoly over a vast untapped market.
In June 2010, Raamdeo Agarwal recommended South Indian Bank as a stock with good potential. At that time, South Indian Bank was quoting at Rs. 18 (adjusted for stock split).
Today, at Rs. 27, investors have got a return of nearly 50% on their investment. In the last one year, the stock has given a return of 35%. The best thing is that the good times may be just beginning for South Indian Bank.
South Indian Bank is all set to achieve a business target of Rs 75,000 crore by March 2013 as envisaged in the Vision Document 2008. It has promised to achieve business of Rs 75,000 crore by March 2013 which will be achieved through 750 branches, 750 ATMs and 7,500 employees. In September 2012 itself, South Indian Bank has registered total business of about Rs. 67,000 crores with employee strength of 6,800, 740 branches and 775 ATMs. So, achieving the targets set out for March 2013 should be a cakewalk for South Indian Bank. It will be opening 10 more branches shortly in Gujarat, West Bengal and Maharashtra and start another 25 ATMs by March 2013 taking the total to 800.
South Indian Bank’s targets to do business worth Rs 1 lakh crore by March 2014. This is not very far from the mark given that the business done till 30th September 2012 was over Rs 67,000 crore. The Bank has been growing at a consistent rate of 23-25%.
South Indian Bank has several other supporters as well. In August 2012, Rajen Shah of Angel Broking recommended South Indian Bank as a strong pick in the banking space and promised investors a 25% return. Well, he has lived up to his promise.
South Indian Bank’s valuations are also very reasonable. At the CMP of Rs. 27.20, it is quoting at a valuation of 1.78 times book and a PE of 8.17. Its dividend yield is a respectable 2.21%. The Return on Net Worth is about 20%. The NIM (net interest margin) is about 3.1%. The NPAs at 2% are a little high though the Bank has promised to reduce it to about 1.2% of its total advances by March 2013.
So, if you are underexposed to the banking sector in your portfolio, South Indian Bank is definitely a candidate that you should consider. It is growing at a steady pace and its valuations are reasonable.