South Indian Bank - 2QFY2016 Result Update - Angel Broking

For 2QFY2016, South Indian Bank (SIB) reported a moderate set of numbers. Its net profit rose by 22.38% to Rs. 93.4cr, helped by lower provisions for bad loans and growth in other income. However, the asset quality disappointed with slippages increasing to 2.38% and with Gross and Net NPA ratios too deteriorating further.

Advances growth improves, NIM rises; however asset quality weakens

During 2QFY2016, the bank's advances and deposits grew at a moderate pace of 11.8% and 13.6% yoy, respectively. Within advances, the SME+Agri loan book grew at a healthy pace, ie at 25.9% yoy, while the corporate book grew by 17.4% yoy. The company is shifting its focus to retail, SME and agriculture loans. But retail advances continued to dip during the quarter; they declined by 10.3% yoy as gold loans continue its downward trend. Nevertheless, the Management expects disbursement prospects in the gold loans segment to improve going forward. CASA deposits grew by 17% yoy and the CASA ratio improved to 22.8%, during the quarter. The Reported NIM for the bank increased by 13bp qoq to 2.67%; the Management expects it to increase to 2.75-2.80% for FY2016 with improvement in the CASA ratio and on account of repricing of deposits at lower rates. Other income excluding treasury declined 2.8% yoy to Rs. 79cr while the treasury income improved by 247% yoy to Rs. 42cr.

On the asset quality front, the Gross NPA ratio increased by 39bp qoq to 2.24%, while the Net NPA ratio came in at 1.39% as compared to 1.21% in 1QFY2016. Slippages during the quarter were higher at Rs. 222cr; a major contributors was a pharma account (to the tune of Rs. 119cr). The bank has restructured 1 road project account worth Rs. 95cr; the total outstanding standard restructured book as at the end of the quarter stood at Rs. 2,000cr.

Outlook and valuation: Issues pertaining to asset quality continue to be a key concern for the bank. Going forward, due to weak outlook on asset quality and subdued margin for the bank, we recommend a Neutral rating on the stock. At the current market price, the stock trades at 0.8x FY2017E ABV.

Shares of SOUTH INDIAN BANK LTD. was last trading in BSE at Rs.22.45 as compared to the previous close of Rs. 22.55. The total number of shares traded during the day was 303469 in over 606 trades.

The stock hit an intraday high of Rs. 22.75 and intraday low of 22.4. The net turnover during the day was Rs. 6847394.

Source : Equity Bulls

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