South Indian Bank 1QF13: Result Review

We hereby bring to you the attached 1QF13 result review on South Indian Bank provided by our Research Team for your perusal.

South Indian Bank 1QF13 result review | TP – Rs30 | Rating: BUY

Core performance in-line; Business growth continues; Slight slippage on asset quality

South Indian Bank’s (SIB) 1QF13 net profit Rs1,230mn was 8% ahead of SSLe of Rs1,146mn on lower provisions. Core earnings were in-line, with bank’s NII growing 44.8% YoY, while operating profit posted a growth of 45% YoY. The business was robust with a growth of 20% YoY. Gold loan portfolio (non-priority), which had gained pace in the fourth quarter, slowed slightly. The portfolio now forms ~20%of the bank’s outstanding loan book.  SIB management indicates that it will be looking for more lending opportunities in the MSME and corporate segments, gold loan business too will be scaled up. Asset quality saw some deterioration with GNPAs coming in at 1.08%. Maintain BUY with a target price of Rs.30.

Core earnings healthy, business growth to remain robust: The NII Rs 2,968mn was up 44% YoY, but grew by a mere 4.3% sequentially. NIMs saw a marginal decline of 10 bps sequentially to 3.15%, mainly on re-pricing of NRE deposits. Bank’s guidance on NIM has been intact at 3% plus and we believe that the bank should be able to maintain such sort of level. SIB’s book in the gold loans saw a decline sequentially (from Rs 68bn to Rs 54bn) on account of a faster increase in other segments of the loan book. Bank aims to maintain the overall portfolio of gold loans at around 25% of the total book by the end of the fiscal from current level of 20% – which would further aid the yields. Overall business growth guidance for F13 has been kept at 25%.

Non-interest income continues momentum: Fee and forex income drove the non-interest income for the bank. Bank was seen gaining income on account of ATM acquiring charges and sale of gold coins. The income from said sources is expected to grow ahead of the balance sheet growth in the next fiscal. Miscellaneous income too was robust, aided by locker rent and portfolio charges. The net income therefore saw a growth of 45% YoY.

Valuations attractive, maintain ‘buy’: We roll forward our price target based on 2QF14e ABV. We have marginally raised F13e net profit but cut F14e profit estimate 8.7%. Nevertheless, we continue to find SIB attractively valued at 1.05x 2QFY14E ABV Rs 22.65 P/ABV. We retain BUY rating on the stock with the target price of Rs30, 1.26x 2QF14e ABV, and a potential upside of 20%.