(SBI) and has recommended accumulate rating on the stock with a target of Rs 30 in its July 18, 2012 research report.
“South Indian Bank (SBI), during Q1FY13, NII grew by 45% YoY to Rs.2,968 mn, on the back of strong Advances growth & stable margins. Its Advances grew 23% YoY, while Deposits grew by 17% YoY. Its CASA grew by 15% YoY, CASA share at 21.1% in total deposits declined by 38 bps YoY but showed an improvement by 142 bps QoQ, owing to strong mop up in NRI savings deposits. Its Gold loan portfolio stood at Rs.~64000 mn (23% of Advances), saw an de growth of 6% QoQ. The Bank intends to keep Gold loans portfolio at 25% of advances. The share of bulk deposits stood at 25% of total deposits in Q1FY13 against 27% in Q4FY12 at Rs.85 bn. The Bank reported decent non interest income growth of 45% YoY driven by forex income, fee income and treasury income. The Bank targets non interest income growth of ~30% for FY13.
“SIB’s operating expenses increased by 45% YoY with employee expenses increasing by 45% YoY, mainly from increased employee base, DA increases and actuarial changes.
Its other operating expenses increased by 45% YoY on higher network expansion.
Its Cost to Income ratio remained flat YoY at 44.2% in Q1FY13, the Bank would like to maintain the ratio at 45% for FY13.
SIB’s total provisions in Q1FY13 increased by 22% YoY to Rs.254 mn on account of higher provisioning required on loan losses (Rs.91 mn against Rs.28 mn in Q1FY12) from higher slippages & restructured assets.
Investment depreciation & standard asset provision saw a de growth YoY.
As a result, the Bank’s Net Profit saw a growth of 49% YoY and stood at Rs.1,230 mn.
“In Q1FY13, Net Interest Margins stood at 3.15%, increasing by 35 bps YoY but contracting marginally by 7 bps QoQ, mainly due to increase in cost of funds as NRE Term deposits came in for re pricing (as RBI deregulated the NRE deposit interest rates last year). The Bank expects NIMs to sustain around 3% for FY13, we have estimated NIMs to stay ~3% in FY13E (3.1% in FY12) on the back of (a) room to increase gold loan portfolio which attracts relatively higher yields, (b) pressure on cost of funds to be eased as only Rs.1 bn of NRE TD (4.5% of NRE TD) is remaining for re pricing and (c) lowering reliance on bulk deposits (shed Rs.10 bn in this quarter).
“SIB is a very conservative bank and has managed a good quality asset portfolio even while growing its Advance base strongly.
Considering its Q1FY13 performance, we have increased our estimates, especially on NII and operating expenses estimates for FY13 & introduced our FY14 estimates.
Going forward, we expect its Advance & Deposit to grow by 23% & 19.8% in FY13E and 21% & 19% in FY14E, while its Net Profit to grow at 12% in FY13E & at 23% in FY14E.
SIB currently trades at an attractive valuation of 1.1x FY14E ABV & 5.3x FY14E Earnings.
Although high ROEs of +19%, the recent deterioration in asset quality and continuous challenging operating environment we have lowered our P/ABV multiple to 1.3x FY14E.
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