"South Indian Bank, DCB and many banks which are available in this
particular range of Rs 20-60, we have gone and studied how big banks
have become very big and how that Rs 70-80 stocks became Rs 250-300 and
we try to took a snapshot of those patterns and we felt two things that
could benefit and how their model shaped out."
He further added, "They had been slowly growing in terms of branches and
secondly, they have been investing on loan books, which was relatively
safe and South Indian Bank is a conservative bank with almost 650
branches approximately 637 to be precise and targeting 700 branches by
the year end. We feel this is one stock, which is relatively undervalued
given the marketcap is Rs 2,800 crore."
"We had gone and studied how banks were acquired, which were in too
distressed at much higher valuation than South Indian Bank and the
roughly valuation that now we are pegging at is Rs 6.5 crore to Rs 7
crore branch for banks like South Indian Bank on conservative side
because it has got good asset quality and there was last quarter where
we expected a slippage of one big number, which has now been reversed
which the management has guided in last quarter itself. So if you see we
are expecting close to Rs 125 crore for this particular quarter and
over Rs 550 crore for the full year."
"This is one story, which should be in a bet for three-four years. We
have seen Karur Vysya Bank, ING Vysya Bank even PSU banks like UCO Bank,
Vijaya Bank from Rs 38, Allahabad Bank, they all shaped out with
development into their story and once they reach that more than 750
branches, their valuation got refined and South Indian Bank is the
perfect proxy in this particular scenario where we feel given there is a
strong support at Rs 22-23, which is because right now the stock is at
Rs 25 because of the good expectation from numbers but is a very good
buy at this Rs 22-23-25 levels from three-four years perspective."
"If the bank crosses Rs 1,200 by FY15-FY16 because as far basel III
norms are concerned, they require roughly around Rs 1,400 crore. So if I
adjust that also, shareholders who are buying right now, they would get
atleast 20-23% year-on-year (YoY) growth from next three-four years
perspective and asset which gives you more than 20% growth from next
three-four years perspective, I think it is a blind bet and you have
hardly anything to lose on valuation front on these kind of banks. So a
win-win situation for long-term players and that is why we have put this
in a portfolio bet."
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