South Indian Bank Q2FY17: Strong investment gains trigger PAT by 18% y/y; maintain Buy

Motilal Oswal | July 16, 2012, midnight

  • South Indian Bank’s (SIB) PAT grew 18% YoY to INR1.1b, helped by strong investment gains (45% of PBT). Core PPoP grew 13% YoY, aided by one-off  contribution to net interest income (our est. of INR440m). The bank reported stable margin QoQ at 2.75% and expects it to be 2.8-2.85% in FY17.
  • Loans/deposits grew 10%/13% on YoY basis and 6%/4% on QoQ basis. The share of CASA remains stable YoY at 22.8% (-40bp QoQ). The share of corporate advances continues to drift lower (39% v/s 42% in 2QFY16).
  • Asset quality deteriorated QoQ with the addition of corporate slippage in the quarter. Sequentially, the slippages ratio (annualized) increased from 1.3% to 2.3%. Overall GNPA ratio was stable QoQ at ~4%.
  • With delinquency from the corporate portfolio, OSRL declined to INR7.6b (1.8% of loans) v/s INR9.5b in 1Q. Of the OSRL, 54% belongs to the construction segment and 15% to discoms. The bank has INR11.7b (including pipeline of INR1.2b), 2.7% of loans, in the form of SDR and S4A.

Valuation and view:  The focus on granular low-ticket retail and SME advances, coupled with increasing share of core deposits, should provide stability to margins. Efforts on fee income are yielding results, and the growth rate has improved to 18% YoY in 1HFY17. Management is focusing on increasing efficiency of the existing network and cutting the flab from the system. We expect C/Core Inc. ratio to decline to 53% from 60% in FY16. Additional stress in the corporate segment can come from OSRL+SDR book (~4.5% of overall loans). Low PCR will keep credit cost elevated. Overall, we expect PAT CAGR of 21% over FY16-19 and ROAs to improve 10bp to 65bp by end-FY19. Current valuations largely discount the negative. Maintain Buy.


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