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South Indian Bank 3QFY2013 performance highlights and results update

Contributed by Angel Broking

South Indian Bank (SIB) reported a strong performance for 3QFY2013, with operating profit growth of 31.5% yoy. On the earnings front, growth came in relatively lower at 25.4% yoy, as the bank doubled its provisioning to Rs.45cr, thereby improving its low PCR by 735bp to 58.6%.

NIMs and Asset quality improve sequentially: During 3QFY2013, the bank’s business growth remained healthy, with advances growing by 17.5% yoy and deposits growing by 15.1% yoy. The CASA ratio improved on a sequential basis by 50bp to 20.5%. The reported NIM as of 9MFY2013 at 3.2%, improved from 3.1% reported for 1HFY2013, largely on account of absence of interest reversals and capital raising effected during 3QFY2013. The bank registered a moderate performance on the non-interest income front, with a growth of 10.5% yoy to Rs.66cr, which was aided largely by higher treasury gains. Excluding treasury gains, non-interest income declined by 2.4% yoy to Rs.53cr. The bank reported improvement in its asset quality, as annualized slippages for the bank, which had zoomed to 3.5% in last quarter, due to one-offs (NAFED and employee fraud), came at 0.8%, much near normalized levels. Apart from lower slippages, the bank reported higher recoveries/upgrades at Rs.74cr, compared to an average of Rs.38cr since 1QFY2012. Hence, gross and net NPA levels, declined sequentially on an absolute basis by 4.3% and 18.7%, respectively. On the NAFED exposure, the management intends to provide for 60% of the due by March 2013 i.e ~Rs.90cr and has already provided nearly Rs.56cr in the last two quarters. On the employee related fraud, for which the bank had provided for in full, in last quarter, the bank managed to recover a small amount of Rs.0.5cr during the quarter. The bank witnessed no fresh restructuring during the quarter. As of 3QFY2013, its restructured book, which is stated on outstanding basis stands at Rs.1,348cr, of which more than ~Rs.800cr are those advance which have performed satisfactorily for more than a year. The bank does not have any major restructuring in pipeline currently.

Outlook and valuation: After witnessing higher slippages in 2QFY2013, which were mostly one-off in nature, the asset quality for the bank has normalized during the quarter. The stock currently trades at 1.2x FY2014E ABV, which is cheaper than its peers, despite having delivered better return ratios. Hence we recommend a Buy rating on the stock, with a target price of Rs.34.