MOSL: SOUTH INDIAN BANK (Buy)-Asset quality concerns to ease-valuations reasonable
SOUTH INDIAN BANK: Asset quality concerns to ease; valuations reasonable
(SIB IN, Mkt Cap USD0.4b, CMP INR14, TP INR20, 41% Upside, Buy)
- Higher provisions dragged South Indian Bank's (SIB) 3QFY19 PAT to INR838m (27% YoY decline) even as operating profit growth stood flat. Fresh slippages increased to INR6.59b led by downgrade of IL&FS exposure (INR4b) and one EPC account (INR1.03b). But, slippages in retail and agri portfolio improved.
- Advances growth improved 15% YoY / 5% QoQ while margins improved 5bp QoQ to 2.66%. However, NII growth stood modest at 2% YoY / 2.6% QoQ. C/I ratio improved marginally to 53% mainly supported by other income (18% YoY growth). SIB is yet to provide for INR153m of unamortized MTM provision in the next quarter.
- Loan growth at 15% YoY was led by 29% YoY growth in pure retail loans while the corporate loan segment grew 14% YoY. The growth in agriculture/SME book stood relatively modest at 7%/6% YoY. Corporate book now comprises ~35% of the total advances.
- Other highlights: (a) SMA-2 for the bank stands at 2.98% (INR19.9b), (b) INR1.8b is carved for the MSME dispensation out of the total affected portfolio of INR9b, (c) the bank has guided for ~1.1% of credit cost for FY20E, and (d) retail loan growth should remain in the 25-30% range.
- Despite elevated slippages (4.7% annualized), impact on NPL ratios was relatively controlled (27bp/38bp QoQ increase in GNPL/NNPL ratios). This was driven by healthy reductions of INR3.8b (Cash recoveries of INR0.4b; upgrades of INR1.2b and w/off of INR2.2b). Slippages in agri were benign at 0.04% v/s 0.22% in 2QFY19. Absolute GNPA increased 10.7% QoQ to INR29.3b and NNPA increased 17.6% QoQ to INR20.9b, while calculated PCR declined to 28.3%. NSL stands at INR33b - 5.53% of loans.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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