MOSL: 3QFY18 RESULTS | SOUTH INDIAN BANK (Buy)-PAT beat led by lower-than-expected provisions

​3QFY18 RESULTS | SOUTH INDIAN BANK: PAT beat led by lower-than-expected provisions; asset quality improves

(SIB IN, Mkt Cap USD0.6b, CMP INR32, TP INR38, 17% Upside, Buy)

• SIB's reported PAT increased 3% YoY to INR1.15b, beating our estimate by 11%, as provisions of INR1.5b were 25% below our estimate. PPoP declined 28%/12% QoQ/YoY, led by a sharp fall in other income (treasury gains declined 91% YoY due to an increase in bond yields, while the base quarter had low yields due to the impact of demonetization).
  
• NII grew 1%/22% QoQ/YoY, driven by 5%/17% QoQ/YoY advances growth and 22bp YoY NIM expansion. However, on a sequential basis, NIM contracted 7bp to 2.88% with a fall in MSME yields, as the bank is increasingly looking at greater collateral cover. Opex growth was controlled at 5%/13% QoQ/YoY (employee expenses were up 6% YoY). CI ratio increased to 50.6% (v/s 41.3% in 2QFY18).
  
• Loan growth of 5%/17% QoQ/YoY was driven by robust growth in retail (+25% YoY) and SME (+25% YoY), while the corporate book grew 3% YoY, in line with the bank's retail-focused strategy. Share of corporate book has reduced to 35.5% of advances compared to 40% in the year-ago period.
  
• Slippages came in at INR2.5b (same as 2QFY18). Slippages declined in agriculture (0.18% v/s 0.44% in 2QFY18) and SME (0.18% v/s 0.78% in 2QFY18), but increased marginally to 0.38% in retail (0.34% in 2QFY18). Absolute GNPA increased 0.5% QoQ to INR17.7b, while NNPA declined 3.6% QoQ. GNPA/NNPA in percentage terms came in at 3.4%/2.35%.
  
• Other highlights: a) SIB is aiming to raise capital via a QIP with issuance of 200m shares. b) CASA ratio stood at 24.9% (+30bp QoQ). c) The bank issued INR4.9b of Tier II bonds during the quarter.