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South Indian Bank 4QFY2014 performance highlights and results update

May 7, 2014, Wednesday, 04:18 GMT | 23:18 EST | 07:48 IST | 10:18 SGT
Contributed by Angel Broking

South Indian Bank reported operating performance below our estimates, while asset quality witnessed improvement qoq (aided primarily by lower slippages). On the operating front, NII for the bank was in line with our estimates at Rs.365cr, while non-interest income excluding treasury and recovery from bad debts degrew by 8.8% yoy, leading to a largely flat operating income yoy. Opex grew 3.1% yoy to Rs.256cr, in-line with our expectations. Pre-provisioning profit remained largely flat yoy at Rs.205cr. Provisioning expenses came in at just Rs.28cr as compared to Rs.66cr in 4QFY2013. Overall earnings de-grew by 19.0% yoy to Rs.125cr.

Business growth healthy; Asset quality improves on lower slippages: During 4QFY2014, the bank registered a moderate growth in business, as advances and deposits both grew at 13.9% and 7.3% yoy respectively. The CASA ratio increased 211bp yoy (46bp sequential decline) to 20.7%. Reported NIMs for the bank remained stable at 3.02% for FY2014. The bank registered de-growth in non-interest income (excl. treasury) by 20.2% yoy to Rs.85cr. Overall, the non-interest income de-grew by 20.3% yoy to Rs.97cr. The bank’s asset quality performance improved during the quarter, as slippages came in lower sequentially (annualized slippage ratio at 0.6% vs 1.3% in 3QFY2014) Sequentially lower slippages and healthy recoveries/upgrades aided absolute Gross and Net NPA levels to decline by 22.0% and 28.1% qoq, respectively. The PCR (incl. technical write-offs) for the bank improved 690bp qoq to 62.7%. The bank’s Gross and Net NPA ratios declined sequentially by 47bp and 40bp to end the year at 1.2% and 0.8% respectively. Going ahead, the Management has guided for Gross NPA ratio below 1.1% and net NPA ratio at 0.7% by FY2015 end.

Outlook and valuation: After witnessing severe pressure over 1HFY2014, the bank’s asset quality improved significantly during 2HFY2014 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, the bank currently trades at relatively moderate valuations of 0.7x FY2016E ABV. We recommend a Buy rating on the stock with a target price of Rs.30.