Geojit Financial

South Indian Bank (Accumulate)

CMP: ₹11.06

Target: ₹13.2

South Indian Bank is a private sector bank headquartered at Thrissur in Kerala having 1,401 ATMs and 870 branches, with around 84 per cent of them in South India. Currently, the bank is having a loan book size of about ₹65,334 crore and deposit base of about ₹80,451 crore.

Advances reported a moderate growth of 9 per cent on a y-o-y basis with sequential growth in retail, agriculture and MSME loans.

Stable growth in deposit at 11 per cent y-o-y due to 13 per cent y-o-y increase in retail deposits and improvement in CASA ratio.

Reduction in corporate segment exposure to 30 per cent of the loan book in Q3FY20 as compared to 35 per cent a year ago reflects the managements strong effort to concentrate more into retail loans.

Net interest margin (NII) for the quarter grew by 15.8 per cent y-o-y and by 3.0 per cent on a sequential basis, while the cost to income ratio (C/I) deteriorated by 280bps to 53.4 per cent.

Currently gross/ net NPA stands at 4.96 per cent/3.44 per cent compared to 4.88 per cent/3.54 per cent in Q3FY19, while SMA2 and Provision Coverage Ratio (PCR) improved to 2.71 per cent and 50.4 per cent respectively.

We value the bank at 0.40x BV of FY21E with a revised target price of ₹13.2. But given the risk profile of the stock, we suggest an ‘Accumulate’ rating.