Buy South Indian Bank - Motilal Oswal

• Mkt Cap USD0.5b

li>CMP Rs188
• Buy

South Indian Bank (SIB) posted a net profit of Rs584m for 1QFY11 (v/s our estimate of Rs548m), down 3% YoY. Adjusted for accrued interest on deposits not accounted during 1QFY10, net profit grew 30% YoY. Earnings were better than expected, led by higher net interest income (NII). Key highlights are:

- NII grew 10% YoY; however, adjusting for the proportionate understatement of interest expenses in 9MFY10, NII growth would have been higher at 29% YoY.

- NIM improved to 2.83% v/s 2.76% (adjusted) in 1QFY10 and 2.77% for FY10.

- Loan growth was strong at 34% YoY, while deposits grew 25% YoY. C-D ratio improved to 72.4% v/s 67.8% in 1QFY10 and 70% for FY10.

- CASA growth of 28% YoY outpaced overall deposit growth and CASA ratio improved to 25.1% v/s 24.5% for 1QFY10.

- Gross NPAs increased 6% sequentially in absolute terms; however, on account of higher loan growth, in percentage terms it remained stable QoQ. Net NPAs increased 5% QoQ while provision coverage was at 71%.

Maintain Buy: We expect SIB to report EPS of Rs23.1 and BV of Rs149 in FY11, and EPS of Rs28.6 and BV of Rs171 in FY12. We expect RoA to sustain at ~1%; higher leverage would help drive RoE to ~18% by FY12. The stock trades at 1.1x FY12E BV. Improving performance and being a strategic target for large private banks looking for inorganic growth make SIB an attractive bet. Buy (target Rs205, 1.2x P/BV FY12E).

Source : Equity Bulls

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