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‘Outlook to improve’
South Indian Bank Ltd. (SIB) reported 8.4% YoY growth in NII (improved from 1.5% YoY in Q4FY19) leading to 7bps QoQ sequential improvement in NIM to 2.5%. Nevertheless, margin at this level remained lower than long term trend (avg. ~2.75%). Mixed performance on assets quality front as slippage rate reduced to 0.4% (0.6% in Q4FY19) while the overall stress (including SMA2 + restructured advances) rose to 3.1% of advances (2.1% in preceding quarter). Mgmt expects 15-18% advances growth in FY20 and announced capital raising plan (equity dilution with 30 crore of shares and bond raising of Rs5.0 bn) to fund the growth. Clean up in big corporate a/c is largely compete and slippage across segments showing easing trend. While the credit cost is likely to remain elevated in the wake of low coverage ratio, double digit business growth, likely expansion of ~10 bps in NIM and strong other income to boost profitability in coming two fiscals. We maintain our ‘Buy’ rating on the stock with potential price of Rs17.3 (0.8 P/ABV(x) to FY21E ABVP of Rs21 per share).
Q1FY20 Result Analysis
NII grew by 8.4% YoY and 7.3% QoQ (1.5% YoY and -3.9% QoQ in Q4FY19) owing to strong interest income which grew by 14.6% YoY. NIM expanded by 7 bps QoQ to 2.53%, however remained lower on sequentially trend of ~2.75% due to poor yield on advances of sub 10%. Meanwhile strong other income (24.7% YoY driven by trading profit) and controlled OPEX (7.9% YoY) boosted PPOP which grew by 17.8% YoY. C/I ratio came at 55.7% in Q1FY20 v/s 57.9% in the same quarter of previous fiscal, however witnessed no improvement on the sequential trend. P&C also reduced by (-)11.5% YoY due to reduced slippage.
Overall, SIB reported PAT of Rs0.73 bn with the sequential growth of 4%. Advances grew by 13.0% YoY (14.9% YoY in Q4FY19) driven by strong growth in retail (25% YoY), agriculture (14.5% YoY) and MSME (14.2% YoY). Meanwhile corporate growth at 3% YoY remained muted. Deposits grew at 12.7% YoY (11.6% YoY in Q4FY19) and term deposits growth at 13.6% YoY remained higher than CASA growth at 10.3% YoY. CASA share of the bank stood at 24.1% v/s 24.2% in the preceding quarter. Though Mgmt emphasized strong focus on CASA but does not see aggressive accumulation in coming quarters. C/D ratio stood at 76.7% and CAR at 12.2% in the quarter under review.
Assets Quality View
Gross slippage was reported at Rs2.4 bn with the slippage rate of 0.4% v/s 0.6% in Q4FY19 and 1.1% in Q4FY18. After recovery of Rs0.87 bn and write-offs of Rs1.32 bn, net addition to GNPA was Rs0.22 bn. GNPA/ NNPA was reported at 4.96%/ 3.4% v/s 4.92%/3.5% in preceding quarter. However increase in restructured advances and SMA2 cumulatively to 3.1% of advances offset the impact of improvement on slippage front. Mgmt guided for Rs2.5 bn of quarterly slippage, Rs5.0 bn of annual R&U and quarterly credit cost of Rs2.0 bn for FY20E. We have expected credit cost and slippage rate of 1.1% and 2.3% for FY20 v/s 1.1% and 3.4% in FY19.
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