SOUTH INDIAN BANK -SEPTEMBER QUARTER RESULT FY17

South Indian Bank reported strong second quarter numbers with PAT & Net Interest Income rising 18% & 15% respectively. Profit After Tax stood at Rs. 1105 mn for the quarter against Rs. 934 mn in the same period previous year and also rose 16% sequentially. Net Interest Income stood at Rs. 4450 mn compared to Rs. 3880 mn in the corresponding quarter previous year, rising 15% YOY and 19% QOQ. Net Interest Margin (NIM) is reported at 2.75% rising by one basis point over the previous June quarter, but on yearly basis decline has been around 6 basis points. Other income also jumped 20% YOY from Rs. 1212 mn to Rs. 1459 mn in the current September quarter. Compared to the previous June quarter, other income declined by 16% in Q2 FY17. Asset Quality seems to be stable as Net NPAs have declined QOQ by 12 basis points whereas Gross NPAs were constant at 3.96%. Gross NPAs & Net NPAs stood at 3.96% & 2.77% respectively in the current September quarter FY17. Provisions for the current quarter were at Rs. 1283 mn compared to Rs. 675 in Q2 FY16, almost doubling YOY. All segments except corporate performed well in the current quarter. CASA ratio is stagnant at 22.80% YOY, though on quarterly basis it has dipped by 40 basis points. Advances witnessed QOQ growth of 5.60% whereas Deposits were constant at 4% over the previous two quarters. Advances & Deposits stood at Rs. 435480 mn & Rs. 601920 mn with yearly rise of 10% & 13% respectively in the current September quarter. South Indian Bank has around 454 branches in Kerala with a total of 854 branches & 1306 ATMs as on 30^th September 2016. The bank has Capital Adequacy Ratio of 11.13%. The bank seems to be strong on profitability in the current September quarter but weak when it comes to asset quality & CASA ratio compared to other private sector competitors. The bank needs to expand to strengthen its CASA & credit growth in the long run. With new banks already in the fray along with small & payments bank, Indian banking sector is becoming more & more competitive.

Net Profit Margin for the Bank is seen at 5.33% X FY 17E and 5.19% x FY18E respectively. At CMP of Rs. 24.40, EPS is seen at 2.56 x FY17E and 2.62 x FY18E respectively. The PE ratio for the bank is seen at 9.53 x FY17E and 9.30 x FY18E respectively. P/B for the Bank is seen at 0.81 x FY17E and 0.75 x FY18E respectively. We recommend HOLD for medium and long term investment with the target price of Rs 40.

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