“South Indian Bank (SIB), net profit for the current quarter increased 49.1% YoY (19.3% QoQ) to Rs1219.5 mn from Rs817.7 mn for Q4 FY11 despite sharp spike in cost / income ratio (989 bps YoY, 929 bps QoQ). The growth in PAT was mainly driven by 28.4% increase in the NII at Rs2845.6 mn (on the back of robust business growth coupled with stable NIMs), lower provisioning during the quarter (-53.3% YoY & -44.4% QoQ) and lower tax expense (-36.1% YoY & -47.3% QoQ). The Bank has provided Rs220 mn of incremental liability as per the actuarial valuation of employee benefit for FY12, Rs100 mn for additional 100 employees who have not opted for the retirement benefits earlier and also Rs50 mn on incentives scheme resulting into higher operating cost during the quarter.”
“Net Interest Margins (reported) improved by 5 bps sequentially driven by higher increase in yield on advances (20 bps) as compared to cost of deposits (17 bps) during the quarter coupled with 167 bps improvement in CD ratio from 74.0 to 75.7. Added to this, higher yield on investments during the quarter further helped in improving margins. The management expects the NIM in the current fiscal to be at around current levels. Total business of the bank registered a robust growth of ~27.0% YoY (8.9% QoQ) as at Q4 FY12. Deposits grew by 22.8% YoY (7.9% QoQ) from Rs297.2 bn in Q4FY11 to Rs365.0 bn in the current quarter, whereas Net Advances grew by 32.9% YoY (10.3% QoQ) from Rs208 bn to Rs276.4 bn over the same period. The growth in advances was mainly driven by increase in gold loan portfolio and corporate loan book. Low cost deposits constitute 19.7% of total deposits as at Q4FY12. The management has guided for ~22% growth in total business in the current fiscal and also indicated that going forward the key focus area would be to increase CASA. The management expects the CASA ratio to improve to ~23% by FY13E. The Capital Adequacy Ratio (CAR) stood at 14% with Tier 1 Capital ratio of 11.5% as on March 31, 2012. The bank is planning to mobilize Rs4.0 bn of capital in FY13. The management indicated that the total capital requirement to meet Basel III requirements in next 4-5 years is Rs14 bn (even after ploughing back profits).”
“We estimate SIB to report an EPS CAGR of 19.0% over FY12-FY14E. ABV is estimated to grow at 19.3% CAGR during the same period. The stock currently trades at 0.9x FY14E ABV and 4.8x FY14E EPS. Going forward, we expect the bank’s margins to come under slight pressure given the bank’s increased focus towards low yielding corporate segment. We expect the bank to deliver healthy net interest income growth (CAGR 22.3% over FY12-14E) and earnings growth (CAGR 19.0% over FY12-14E) driven by strong traction in business growth and stable asset quality going forward. We retain our BUY rating on the stock with a target price of 30.2 (1.15x FY14E ABV), thus giving an upside potential of 25.8% from current levels,” says Aditya Birla Money research report.
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