Earnings Update - South Indian Bank (SIB IN) - Asset quality improves on sale to ARC - CSEC Research

Asset quality improves on sale to ARC

- SIB's Loan book grew steadily (12.7%YoY, 4%QoQ) to INR 471bn in 4QFY17 led by growth in SME & Agriculture (13%YoY) and Retail (17.5%YoY). Sequentially, Retail book grew by 12.3% which helped the overall loan book to clock a 4.1% growth. Management has guided to grow its overall loan book growth at ~20% in FY18 primarily lead by retail and SME segment.

- Growth in retail segment was led by Service and Traders segment (24%YoY) & Manufacturing segment (33.3%YoY) whereas Gold loan showed de-growth of 3.6% YoY. The proportion of gold loans in retail segment now stood at 11.4%. Management continues to focus on segments like Retail, SME & Agri and is looking to avoid large ticket consortium lending.

- Deposits grew (18.7%YoY, 4%QoQ) to INR 661bn supported by growth in Current account (38.8%YoY) & Savings deposits (24%YoY). Overall CASA registered a growth of (26.4%YoY) with the share of CASA increasing to 23.8% from 22.4% in 4QFY16. However, CASA ratio declined sequentially by 211bps on redemption of deposits.

- NII grew by 17% YoY at 4.4bn on the back of advance growth and margin improvement. NIM improved by 8bps QoQ to 2.74% for 4QFY17 amidst drop in Yield on advances by 35bps QoQ & drop in cost of funds by 25bps QoQ. The bank expects to maintain the NIM at 2.8% - 2.85% for FY18 after factoring the expected slippages.

Valuation: The bank continues to shift its focus from corporate loans towards Retail & SME loans which would help them contain the credit costs and maintain the margins at healthy level. The Stock currently trades at 0.9x PBV of FY19E. We maintain our BUY rating for the stock while upgrading the target price to INR 30, implying a 1X P/B FY19E.

Risks: Tougher ramp up of retail loan book; fresh big ticket slippages from corporate book.

Shares of SOUTH INDIAN BANK LTD. was last trading in BSE at Rs.26.25 as compared to the previous close of Rs. 26.1. The total number of shares traded during the day was 2203918 in over 2815 trades.

The stock hit an intraday high of Rs. 27 and intraday low of 25.7. The net turnover during the day was Rs. 58307678.

Source : Equity Bulls

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