Around 463 branches are in Kerala, 246 in south India (excluding Kerala)and 142 in the rest of India. As on Q2FY18, the bank had advances of 48954 crore. Deposits were at | 67142 crore with CASA ratio at 24.6%.
South Indian Bank Ltd.was incorporated in the year 1929, is a banking company (having a market cap of Rs 5941.06 Crore).
South Indian Bank Ltd. key Products/Revenue Segments include Interest & Discount on Advances & Bills which contributed Rs 4447.42 Crore to Sales Value (76.06 % of Total Sales), Income From Investment which contributed Rs 1233.48 Crore to Sales Value (21.09 % of Total Sales), Interest which contributed Rs 142.15 Crore to Sales Value (2.43 % of Total Sales) and Interest On Balances with RBI and Other Inter-Bank Funds which contributed Rs 24.04 Crore to Sales Value (0.41 % of Total Sales)for the year ending 31-Mar-2017.
The Bank has reported a Gross Non Performing Assets (Gross NPAs) of Rs 1766.32 Crore (3.57 % of total assets) and Net Non Performing Assets (Net NPAs) of Rs 1255.84 Crore (2.57% of total assets).
For the quarter ended 30-09-2017, the company has reported a Standalone Interest Income of Rs 1182.95 Crore, up 4.28 % from last quarter Interest Income of Rs 1134.44 Crore and up 6.20 % from last year same quarter Interest Income of Rs 1113.93 Crore. The bank has reported net profit after tax of Rs 4.32 Crore in latest quarter.
Triggers
Bulk of legacy NPA stress recognised; incremental NPA pressure to ease SIB had increased its loan book at a higher pace of 25% CAGR in FY09-14 to | 36230 crore, mainly led by the corporate segment. This strategy backfired. The bank witnessed large NPA stress in FY14-17. The GNPA ratio increased to 4% in Q2FY17 and is now at 3.6% (| 1766 crore) as on Q2FY18 vs. 1-1.3% range before FY14. The bank has a standard RA book of ~| 260 crore and ~| 300 crore under 5:25 scheme with no exposure under SDR/S4A. In the last few quarters, it has recognised bulk of the pain from the legacy book. This is reflected in average slippages of >| 600 crore in the past three quarters. The bank expects incremental asset quality pressure to ease as there are no accounts under watchlist in the corporate book. With low PCR of ~40%, credit cost would stay elevated.
Loan traction to improve to high teens; operating earnings to increase Owing to asset quality woes and a weak economy in FY14-17, credit growth was impacted and was at 8.6% CAGR. The bank has guided for credit traction of ~18-20% led by retail & SME segments. In Q2FY18, loans grew 12% YoY. NIMs had fallen to 2.6% from close to 3% before FY14. With an increase in CD ratio ahead, focus on retail & SME loans and lower incremental NPA stress, margins are expected to improve 2.9-3%.
This would drive healthy traction of ~18% CAGR in operating earnings. In turn, this would aid in absorbing the credit cost.
Return ratios to witness improvement, going ahead
Improving operating earnings would reflect positively in the bottomline.PAT could improve to >| 700 crore by FY20E from ~| 400 crore in FY17.RoE could improve to 13-15% range while the RoA would be~0.9-1%.
At the CMP, the stock is available at ~1.0x FY20E ABV. Focus on cleaning up the balance sheet, rise in credit traction & margins and quality of earnings/ return ratios shall warrant a higher multiple. The risk-reward seems favorable. At 1.3x FY20E ABV, the stock can be expected to reach ~| 40 levels from a 12-15 month perspective. We have BUY rating on SIB.
Sharmila Joshi of sharmilajoshi.com told CNBC-TV18, "I would expect Rs 38-39 kind of a target on South Indian Bank, so where the banking space is concerned it is such a mix play because so much news flow and both positive as well as negative but at the same time I think that banks like South Indian Bank are consolidating in the space that they are in."
"I think they are faring in some sense better than some of the larger peers in that sense and they have also sort of not got too badly hit by that NPA picture as well, so I think all things considered I would hold the stock at current levels for a target of Rs 39," she added.
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