MOSL: SOUTH INDIAN BANK (Upgrade to BUY)-Growth getting back on track; Balance sheet cleanup continues
​South Indian Bank: Growth getting back on track; Balance sheet cleanup continues, upgrade to BUY
(SIB IN, Mkt Cap USD0.5b, CMP INR25, TP INR31, 24% Upside, upgrade to BUY)
- SIB reported PAT growth of -32%/+4% QoQ/YoY. NII grew 5%/11% QoQ/YoY on the back of 5%/13% advances growth as NIM remained flat YoY and expanded 8bp QoQ to 2.74%. Opex growth was controlled at -1%/+2% QoQ/YoY, and the CI ratio stood at 51.3%. However, elevated provisions (+42% YoY) eroded 26% PPoP growth to result in 4% YoY PAT growth.
- Loan growth of 4%/13% QoQ/YoY was led by healthy growth in retail (+11%/15% QoQ/YoY) and SME/agri (+5%/+13% QoQ/YoY), reflecting the bank’s steady shift in loan mix to granular retail loans.
- The bank continued balance sheet clean-up with sale to ARCs, bringing down GNPA/NPNA to 2.45%/1.45% (-153bp/-107bp QoQ). Elevated provisioning raised PCR to 55.1% (from 50.2% in 3QFY17), and total stressed loans stood at 3% of advances (down from 7% in 3QFY17).
- FY17 highlights: (1) Capital position is healthy post rights issue with Tier 1/CAR at 10.9%/12.37%; (2) QoQ decline in other income was due to one-off treasury gains in 3QFY17 (3) The bank has raised INR6.3b during 4QFY17 via a rights issue – allotted 450m shares to shareholders at INR14/share.
South Indian Bank Limited. The South Indian Bank Limited (the Bank) provides retail and corporate banking, Para banking activities, such as debit card, third-party product distribution, in addition to Treasury and Foreign Exchange Business. The Bank's segments include Treasury, Corporate/Wholesale Banking, Retail banking and Other Banking Operations. The treasury services segment consists of interest earnings on investments portfolio of the Bank, gains or losses on investment operations and earnings from foreign exchange business. The Corporate/Wholesale Banking segment provides loans to corporate segment. The Retail Banking segment provides loans to non-corporate customers. The Other Banking Operations segment includes income from para banking activities, such as debit cards, third-party product distribution and associated costs. The Bank has a network of approximately 830 branches, approximately 40 extension counters and approximately 1,290 automated teller machines (ATMs) in India.
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