South Indian Bank Ltd (SOUBAN)

CMP: ₹ 28.1 Target: ₹ 35 (25%) Target Period: 12 months BUY

March 27, 2024

Acceleration in transformation to drive valuation

About the stock: South Indian Bank (SOUBAN) is old private sector bank based

Company Update
out of Kerala. The bank has undergone business transformation which has led to
gradual improvement in business performance over past years.
Particulars
• Distribution network with 948 branches & 1315 ATMs with strong Particulars Amount
presence in south India. Market Capitalisation 7,032

• Loan book at ₹ 77686 crore with ~36% book from Kerala. Diversified asset 52 week H/L 36.9/12.6
mix with corporate/ retail/ business/ agriculture segments contributing Net Worth 6,674
~38%/ 23%/ 20%/ 19% in loan book Face Value 1.00
DII Holding (%) 7.61
Q3FY24 performance: Healthy momentum in credit growth continued at 11% YoY FII Holding (%) 14.68
& 4% QoQ to ₹75340 crore, led by corporate segment. New book stands at ~67%
of total book. Deposit growth came at 9% YoY & 2% QoQ with CASA ratio at 31.8%. Shareholding pattern
Treasury propelled earnings and RoA which came at 1.07%. Continued pressure on
margins led to ~12 bps QoQ decline at 3.19%. Expenses included wage provision of
₹24 crore and one-time provisioning on fraud of ₹28.6 crore. Asset quality of new
book remained resilient resulting in lower slippages at 0.34% & credit cost at 0.25%.
GNPA/ NNPA ratio witnessed decline of ~22 bps/ 9 bps QoQ at 4.74%/ 1.61%.

ICICI Securities – Retail Equity Research

Investment Rationale

• Focus on five areas to pedal transformation journey: Post restructuring, Price Chart
now the focus is on five-pronged strategy to steer growth and profitability.
1.) Focus to accelerate growth in MSME & retail portfolio through
empowerment of branches to meet customer needs; 2.) improve branch
productivity through increased training and improving “Tooth to Tail” ratio
from 75:25 to 85:15; 3.) Acknowledging relatively higher CI ratio (~62% in
Q3FY24), the bank is set to review employee and operating expenses; 4.)
Focus on non-branch sourcing of business through partnerships; 5.)
Enhance control & compliance architecture to ensure smooth business
processes.

• Focus on retail & MSME segment to aid margins: Accelerating MSME &
Key risks
retail loans will aid margins, however, shift towards non-corporate
segment could keep growth volatile. Expect advance growth at ~13% in (i) Substantial delinquencies from
FY24-26E with gradual uptick in proportion of MSME & retail loans. old loan book
Healthy liabilities franchise, recent capital raising & scope to increase CD
(ii) Higher than expected margin
ratio is seen to keep margins steady at ~3.2-3.3% in FY24-26E. Further,
pressure
resilience of new book (~67% of total advances) and run down in old book
is seen to keep slippages and thus credit cost benign. Research Analyst
Rating and Target Price Vishal Narnolia
[email protected]
• With business transformation imbibed & new competitive leadership,
current trajectory of business restructuring is expected to continue.
Increased focus on retail & MSME segment to aid granularization and
margins which is expected to drive RoA at ~0.9-1% ahead. Valuing the
stock at 0.8x FY26E BV, we assign a target of ₹ 35 and recommend a BUY.

•
Key Financial Summary
3 year 3 year
₹ crore FY20 FY21 FY22 FY23 CAGR FY24E FY25E FY26E CAGR
(FY21-23) (FY23-26E)
NII 2317.7 2406.9 2239.7 3012.1 84.0% 3279.6 3731.4 4242.8 12.1%
PPP 1645.9 1661.6 1247.5 1507.3 106.0% 1834.0 1938.2 2392.6 16.7%
PAT 104.9 61.9 44.9 775.1 26.4% 1023.7 1056.1 1345.2 20.2%
BV 28.5 26.2 26.5 30.4 33.83 37.86 43.00
P/E 56.1 95.0 131.0 7.6 7.2 7.0 5.5
P/ABV 1.0 1.1 1.1 0.9 0.8 0.7 0.7
RoA 0.1 0.1 0.0 0.7 0.9 0.8 0.9
RoE 2.1 1.2 0.8 13.0 11.6 10.7 12.0

Source: Company, ICICI Direct Research

 Company Update | South Indian Bank ICICI Direct Research

Financial Summary

Exhibit 1: Profit and loss statement ₹ crore Exhibit 2: Key ratios

(Year-end March) FY23 FY24E FY25E FY26E (Year-end March) FY23 FY24E FY25E FY26E
Interest Income 7233 8268 9451 10802 No. of Equity Shares 209 262 262 262
Interest Expense 4221 4989 5720 6560 BV 30.4 33.8 37.9 43.0
Net interest income 3012 3280 3731 4243 ABV 26.3 29.0 33.5 39.2
% growth 34% 9% 14% 14% P/BV 0.9 0.8 0.7 0.7
Other income 813 1463 1316 1514 P/ABV 1.1 1.0 0.8 0.7
Total income 3825 4742 5048 5757 NIM % 3.2 3.3 3.3 3.4
Operating expenses 2317 2908 3110 3364 GNPA 5.1 4.6 4.1 3.6
Operating profit (PPP) 1507 1834 1938 2393 NNPA 1.9 1.6 1.3 1.0
Provisions 399 469 530 599 ROA % 0.7 0.9 0.8 0.9
Profit before tax 1108 1365 1408 1794 ROE % 13.0 11.6 10.7 12.0
Tax 333 341 352 448 Source: Company, ICICI Direct Research

PAT 775 1024 1056 1345

% growth 1626% 32% 3% 27%
Source: Company, ICICI Direct Research

Exhibit 3: Balance Sheet ₹ crore Exhibit 4: Growth ratios

(Year-end March) FY23 FY24E FY25E FY26E (Year-end March) FY23 FY24E FY25E FY26E
Sources of Funds Total Assets 7.6% 11.8% 11.1% 11.3%
Paid-up capital 209 262 262 262 Advances 16.4% 12.0% 13.0% 13.0%
Reserves & surplus 6465 8588 9644 10989 Deposits 2.8% 12.0% 12.0% 12.0%
Networth 6675 8849 9905 11251 Total Income 16.8% 24.0% 6.4% 14.0%
Borrowings 6994 6295 5980 5681 Net Interest Income 34.5% 8.9% 13.8% 13.7%
Other liabilities 2378 2616 2878 3166 Operating Expenses 14.4% 25.5% 6.9% 8.2%
Deposits 91651 102650 114968 128764 Net Profit 1626% 32.1% 3.2% 27.4%
Total 107698 120410 133731 148861 Source: Company, ICICI Direct Research

Application of Funds
Fixed assets 878 966 1062 1168
Net value of investments 24642 26367 28212 30187
Loans and advances 69804 78181 88344 99829
Other assets 5294 6258 8337 9279
Cash with RBI & Call money 7081 8638 7774 8396
Total 107698 120410 133731 148861
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 2

 Company Update | South Indian Bank ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according -to their notional target price vs. current market price and then categorizes them as Buy,
Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is
defined as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
Third Floor, Brillanto House,
Road No 13, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

ICICI Securities | Retail Research 3

 Company Update | South Indian Bank ICICI Direct Research

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