Hold stocks of South Indian Bank

South Indian Bank:-

"For 1QFY2013, South Indian Bank (SIB) reported healthy net profit growth of 49.2% yoy (up 0.9% qoq) to `123cr, which was higher than our estimates on account of higher non-interest income than estimated by us. We remain Neutral on the stock."

"For 1QFY2013, the bank’s business growth remained healthy, with advances growing by 23.5% yoy and deposits growing by 17.5% yoy. On a qoq basis, the growth in savings deposits was healthy at 8.0% qoq driven by 13.1% qoq growth in NRE Savings accounts deposits. The total low cost deposits (including low cost NRE deposits) stands at ~22% of overall deposits. The gold loan portfolio declined on a sequential basis by ~`400cr and now stands at ~`6,400cr (23.4% of the overall portfolio)."

"The fee income of the bank reported a strong growth of 49.8% yoy during 1QFY2013. The treasury income was also strong, registering a growth of 34.0% yoy to `20cr. The asset quality of the bank surprised negatively in 1QFY2013, with slippages increasing to `91cr (annualised slippage ratio of 1.3%). The rise in slippages during 1QFY2013 can be primarily attributed to one chunky account (exposure of `38cr to a single MFI account)."

Outlook and Valuation

"The bank’s asset quality which had held up pretty well till now inspite of the macro headwinds (which have led to higher provisioning expenses for most banks) has started to witness signs of pressure. Aggressive yields (~12.8%) on non-gold loan portfolio could further increase provisioning expenses and hence provide downside risk to the bank’s ROA. Also, current valuations at 1.0x FY2014E ABV seems to have factored in the positives (strong growth in gold loans and traction in fee based income) and in our view are considerably above the valuations of small and mid-sized PSU banks having similar fundamentals. Hence we maintain our Neutral stance on the stock," says Angel Broking research report.