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South Indian Bank 1QFY2015 performance highlights and results update

July 22, 2014, Tuesday, 11:12 GMT | 06:12 EST | 15:42 IST | 18:12 SGT
Contributed by Angel Broking


South Indian Bank (SIB) reported a poor set of numbers for 1QFY2015 with asset quality weakening (mainly due to lower recoveries), although the net profit rose 10.3% yoy to Rs.126cr. On the operating front, the Net Interest Income for the bank grew by 4.1% yoy, while non-interest income grew by 2.9% yoy, leading to an operating income growth of 3.8% yoy. The Opex grew at a brisk pace at 24.4% yoy, leading to a pre-provisioning profit de-growth of 12.2% yoy. Provisioning expenses came in at Rs.95cr as compared to Rs.105.4cr in 1QFY2014 as there was an exceptional gain of Rs.43.3cr due to change in depreciation charge from Written Down Value(WDV) to Straight Line Method(SLM), which enabled the bank to report an earnings growth of 10.3% yoy.

Business growth steady; Asset quality worsens on higher slippages: During 1QFY2015, the bank registered a moderate growth in business, as advances and deposits both grew at 9.8% and 6.7% yoy. CASA deposits grew by 14.4% yoy, aided a 150bp yoy and 142bp sequential improvement in CASA ratio to 22.1% in 1QFY2015. Reported NIMs for the bank declined to 2.7% during the quarter from 3% in 4QFY2014, primarily as yield on advances fell to 12.05% in 1QFY2015 from 12.4% in 4QFY2014. The bank’s asset quality performance weakened during the quarter, as slippages came in higher on a sequential basis (annualized slippage ratio at 1.1% in 1QFY2015 vs 0.6% in 4QFY2014). Sequentially higher slippages and lower recoveries resulted in absolute Gross and Net NPA levels to increase by 19.6% and 10.2% qoq, respectively. The PCR (incl. technical write-offs) for the bank declined marginally by 21bp qoq to 62.5%. Going forward, the Management has guided for a Gross NPA ratio below 1.2% by FY2015 end from 1.5% in the current quarter.

Outlook and valuation: Asset quality issues continued to linger during the quarter. The yield on advances fell by 32bp qoq and the cost to income ratio deteriorated to 52.2%. These factors, among others, affected the bank’s performance during the quarter. Going forward, the Management has indicated at healthy recoveries (aided by recovery in a few chunky exposures) and a Net interest margin of 3% in FY2015. The bank is trading at 1.1x FY2016E ABV. We recommend an Accumulate rating on the stock with a target price of Rs.37.