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South Indian Bank 3QFY2014 performance highlights and results update

January 21, 2014, Tuesday, 06:29 GMT | 01:29 EST | 10:59 IST | 13:29 SGT
Contributed by Angel Broking

South Indian Bank reported an in-line operating performance, while asset quality surprised positively (aided primarily by lower slippages). On the operating front, the net interest income for the bank remained flat yoy at Rs.350cr, while non-interest income grew by 27.9% yoy, leading to operating income growth of 3.9% yoy at Rs.435cr. As expected, the opex grew by 19.5% yoy and resulted in pre-provisioning de-growth of 8.3% yoy. Provisioning expenses came in at just Rs.2cr (due to write back of excess provisions of ~Rs.11cr), as compared to Rs.20cr in 2QFY2014, which enabled the bank to report earnings growth of 10.2% yoy.
Business growth healthy; Asset quality improves on lower slippages: During 3QFY2014, the bank registered a healthy growth in its business, as both advances and deposits grew by 14.7% yoy. CASA deposits grew by 19.0% yoy and aided 116bp yoy and 38bp sequential improvement in CASA ratio to 21.7%. Reported NIMs for the bank declined to 3.02% for 9MFY2014 from 3.06% for 1HFY2014, primarily as cost of deposits came in higher at 8.11% for 9MFY2014 compared to 8.07% for 1HFY2014. The bank registered a strong performance on the non-interest income (excl. treasury) front, with a 51.7% yoy growth to Rs.80cr. The bank’s asset quality performance improved during the quarter, as not only slippage came in lower sequentially (annualized slippage ratio at 1.3% from 3.3% in last quarter), but recoveries/upgrades performance was also better sequentially (at Rs.163cr compared to Rs.139cr in last quarter). Of the slippages during the quarter, a single account in the Trade and Exports sector contributed around Rs.50cr. Recoveries/upgrades too were boosted by a chunky account worth Rs.100cr from the shipping sector. Sequentially lower slippages and better recoveries/upgrades aided absolute Gross and Net NPA levels to decline by 9.7% and 10.9% qoq, respectively. PCR (incl. technical write-offs) for the bank improved 230bp qoq to 55.8%. Going ahead, the Management expects healthy recoveries/upgrades (aided by few chunky exposures) to result in Gross NPA ratio below 1.5% and net NPA ratio below 1% by FY2014 end.
Outlook and valuation: After witnessing severe pressures over the last two quarters, the bank’s asset quality has improved during 3QFY2014, aided by lower slippages and healthy recoveries/upgrades. Going forward, the Management is optimistic of healthy recoveries/upgrades (aided by few chunky exposures) to aid further asset quality improvement. Moreover, with healthy capital adequacy and reasonable profitability matrix, the bank currently trades at relatively moderate valuations of 0.8x FY2015E ABV. We recommend a Buy rating on the stock with a target price of Rs.24.