7 October 2016
2QFY17 Results Update | Sector: Financials
South Indian Bank
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR m)
Free float (%)
TP: INR30 (+23%)
Financials & Valuation (INR Billion)
EPS Gr. (%)
Div Yield (%)
2016 2017E 2018E
South Indian Bank’s (SIB) PAT grew 18% YoY to INR1.1b, helped by strong
investment gains (45% of PBT). Core PPoP grew 13% YoY, aided by one-off
contribution to net interest income (our est. of INR440m). The bank reported
stable margin QoQ at 2.75% and expects it to be 2.8-2.85% in FY17.
Loans/deposits grew 10%/13% on YoY basis and 6%/4% on QoQ basis. The share
of CASA remains stable YoY at 22.8% (-40bp QoQ). The share of corporate
advances continues to drift lower (39% v/s 42% in 2QFY16).
Asset quality deteriorated QoQ with the addition of corporate slippage in the
quarter. Sequentially, the slippages ratio (annualized) increased from 1.3% to
2.3%. Overall GNPA ratio was stable QoQ at ~4%.
With delinquency from the corporate portfolio, OSRL declined to INR7.6b (1.8% of
loans) v/s INR9.5b in 1Q. Of the OSRL, 54% belongs to the construction segment
and 15% to discoms. The bank has INR11.7b (including pipeline of INR1.2b), 2.7%
of loans, in the form of SDR and S4A.
Valuation and view:
The focus on granular low-ticket retail and SME advances,
coupled with increasing share of core deposits, should provide stability to margins.
Efforts on fee income are yielding results, and the growth rate has improved to 18%
YoY in 1HFY17. Management is focusing on increasing efficiency of the existing
network and cutting the flab from the system. We expect C/Core Inc. ratio to decline
to 53% from 60% in FY16. Additional stress in the corporate segment can come from
OSRL+SDR book (~4.5% of overall loans). Low PCR will keep credit cost elevated.
Overall, we expect PAT CAGR of 21% over FY16-19 and ROAs to improve 10bp to 65bp
by end-FY19. Current valuations largely discount the negative. Maintain
(Alpesh.Mehta@MotilalOswal.com); +9122 39825415/
(Piran.Engineer@MotilalOswal.com); +9122 39804393
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