South Indian Bank - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, South Indian Bank (SIB) reported healthy net profit growth of 49.1% yoy (up 19.3% qoq) to Rs.122cr, which was higher than our estimates on account of higher non interest income and lower provisioning expenses than estimated by us. We remain Neutral on the stock.

Strong growth in loan book continues: For FY2012, the bank's business growth remained above industry levels, with advances growing by 33.1% yoy (8.9% qoq during 4QFY2012) and deposits growing by 22.8% yoy (7.9% qoq during 4QFY2012). Growth in gold loan portfolio for the bank continued to be healthy, registering a 4.6% increase on a sequential basis. The bank's low cost deposits as a % of overall deposits dropped to 19.7% on account of NRE deposit rates deregulation. The cost of deposits consequently rose by 17bp qoq, however, the yield on advances of the bank also rose by 20bp (aided by growth in high yielding gold loans), leading to marginal expansion of 5bp qoq in NIMs to 3.1%. The bank's employee expenses jumped by 43.4% qoq on account of higher pension provisioning due to actuarial valuations (impact of ~Rs.22cr). The asset quality of the bank deteriorated slightly during 4QFY2012, with slippages increasing to Rs.66cr (annualised slippage ratio of 1.3%) from a quarterly run-rate of ~Rs.35cr. However, the rise in slippages during 4QFY2012 can be primarily attributed to one chunky account (exposure of Rs.50cr to Bharati shipyard).

Outlook and valuation: The bank's foray into gold loans has yielded positive results and has led to sustainably higher NIMs. The bank's asset quality has also held up pretty well inspite of the macro headwinds which have led to higher provisioning expenses for most banks. However, current valuations at 1.1x FY2014E ABV have factored in the positives in our view and are considerably above the valuations of small and mid-sized PSU banks which have similar fundamentals, even after factoring in the robust growth witnessed due to the sharp rise in gold loans. Also, we expect the bank's cost of funds to increase going ahead on account of NRE rates de-regulation which could pull down the NIMs for the bank. Hence we maintain our Neutral stance on the stock.

Source : Equity Bulls

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