South Indian Bank (BUY): Profitability driven by drop in loan loss coverage - Ambit

South Indian Bank (SIB) disappointed on the earnings front with net profit for 4QFY13 at Rs1.54bn (14% ahead of our forecasts), clocking a 26% YoY growth, predominantly driven by tax write-backs during the quarter. The profitability was shored up through sharp shedding of loan loss coverage during the quarter (tangible loan loss coverage at 44% as of March 2013 compared to 58% as of December 2012). With the loan mix skewed ~60% towards large corporate accounts (on account of the mix having been re-stated at the end of 4QFY13) and just over 20% towards retail, we are skeptical about SIB's ability to calibrate its loan mix towards retail (40%) by FY15. Despite tax write-backs and shedding of its loan loss coverage, SIB has barely managed to clock RoAs of 1% for the year. Whilst we stay BUYers at 1.0x our 1-year forward ABVPS (with a low double-digit upside), we do not see any case for re-rating on the back of reported numbers.

Source : Equity Bulls

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