3QFY2016 Result Update | Banking

January 28, 2016

South Indian Bank

NEUTRAL

CMP

`19

Performance Highlights

Target Price

Particulars (` cr)

3QFY16 2QFY16

% chg (qoq) 3QFY15

% chg (yoy)

Investment Period

NII

407

388

4.7

320

27.1

Pre-prov. profit

263

213

23.5

219

19.9

Stock Info

PAT

102

8.8

15.6

Sector

Banking

Source: Company, Angel Research

Market Cap (` cr)

2,484

South Indian Bank (SIB) reported a moderate set of numbers for 3QFY2016. Its

Beta

1.0

net profit rose by 15.6% to `101.6cr, helped by strong NII growth of 27.1% yoy,

52 Week High / Low

28.7/17.5

Avg. Daily Volume

46,08,819

thereby partially offsetting the impact of rise in provisions. However, the asset

Face Value (`)

quality continued to slide further with slippages increasing to 3.93% and with

BSE Sensex

24,436

Gross and Net NPA ratios too rising sharply for the quarter.

Nifty

7,422

Moderate growth in Advances: The bank’s advances and deposits grew at a

Reuters Code

SIBK.NS

moderate pace of 9.7% and 10.3% yoy respectively, during the quarter. The bank is

Bloomberg Code

SIB:IN

shifting its focus to retail, SME and agriculture loans. During the quarter, retail advances

continued to dip; they declined by 4.6% yoy as gold loans continue its downward trend.

Shareholding Pattern (%)

Promoters

CASA ratio and NIM improve: CASA deposits grew by 18.1% yoy and the CASA

MF / Banks / Indian Fls

12.6

ratio improved to 23.0%, during the quarter. The Reported NIM for the quarter

FII / NRIs / OCBs

47.2

increased by 11bp qoq to 2.92% while it increased by 42bp yoy. The bank

Indian Public / Others

40.3

reiterated its NIM guidance in the range of 2.75-2.80% for FY2016. Other

income excluding treasury climbed 26.1% yoy to `103cr, while treasury gains

Abs. (%)

3m 1yr

3yr

declined by 36% on a yoy basis. The cost-to-income ratio for the quarter was at

Sensex

(11.0)

(15.8)

22.3

53.0% and the Management expects to improvise on the same, going forward.

SIB

(16.2)

(33.9)

(34.6)

Asset quality slipped further: On the asset quality front, the GNPA ratio increased

by 51bp qoq to 2.75%, while the NNPA ratio came in at 1.80% as compared to

3-year price chart

1.39% in 2QFY2016. SIB has been reporting high slippages from the corporate

book since the last few quarters. Slippages for 3QFY2016 were at `367cr which

is essentially because of some trading accounts including gold and also some

contracting accounts. The bank has expressed that it has zero divergence with the

regulator and it has completely reckoned and provided for fully as per the

guidelines. The bank did not participate in 5/25 refinancing in 3QFY2016, but

has 1 account under SDR of ~`150cr.

Outlook and valuation: Issues pertaining to asset quality continue to be a key

concern for the bank. Going forward, asset quality pressures could be detrimental to

Source: Company, Angel Research

the bank’s growth. Given the current macro environment, we recommend a Neutral

rating on the stock. At the current market price, the stock trades at 0.7x FY2017E ABV.

Key financials (standalone)

Particulars (` cr)

FY2014

FY2015

FY2016E

FY2017E

NII

1,399

1,366

1,483

1,660

% chg

9.2

(2.3)

8.6

11.9

Net profit

508

307

342

454

Vaibhav Agrawal

% chg

1.0

(39.5)

11.4

32.6

022 - 3935 7800 Ext: 6808

NIM (%)

2.7

2.5

[email protected]

EPS (`)

3.8

2.2

2.5

3.3

P/E (x)

4.8

8.1

7.3

5.5

P/ABV (x)

0.8

0.7

Chintan Shah

RoA (%)

1.0

0.5

0.6

0.7

022 - 4000 3600 Ext: 6828

RoE (%)

16.6

9.2

9.5

11.6

[email protected]

Source: Company, Angel Research; Note: CMP as of January 27, 2016

Please refer to important disclosures at the end of this report

South Indian Bank | 3QFY2016 Result Update

Exhibit 1: 3QFY2016 performance (standalone)

Particulars

3QFY16

2QFY16

% chg (qoq)

3QFY15

% chg (yoy)

FY2015

FY2014

% chg

Interest earned

1,408

1,405

0.2

1,307

7.7

5,286

5,015

5.4

- on Advances / Bills

1,114

1,108

0.6

1,033

7.9

4,153

3,950

5.1

- on investments

250

249

0.4

259

(3.4)

1,054

954

10.4

- on balance with RBI & others

(49.8)

(79.2)

111

(28.3)

Interest Expended

1,001

1,017

(1.5)

987

1.4

3,920

3,616

8.4

Net Interest Income

407

388

4.7

320

27.1

1,366

1,399

(2.3)

Other income

153

121

26.5

160

(4.4)

497

368

34.9

Other income excl. treasury

103

30.4

26.1

465

299

55.8

- Treasury Income

19.0

(36.2)

(54.7)

Operating income

560

510

9.9

480

16.6

1,863

1,767

5.4

Operating expenses

297

0.1

261

13.9

1,047

883

18.6

- Employee expenses

185

179

3.3

155

19.0

634

529

19.8

- Other Opex

112

118

(4.6)

106

6.2

413

354

16.8

Pre-provision Profit

263

213

23.5

219

19.9

816

884

(7.7)

Provisions & Contingencies

106

57.7

23.8

371

155

138.5

- Provisions for NPAs

(5.9)

63.3

219

110

98.8

- Provisions for Investments

(3)

(478.0)

(3)

(452.9)

(29)

(148.1)

- Provisions for Standard Assets

(33.4)

194.0

(19.4)

- Other Provisions

(1)

(35)

(98.5)

(101.5)

102

250.4

PBT

157

146

7.6

133

17.4

446

729

(38.9)

Provision for Tax

5.5

20.9

138

221

(37.5)

PAT

102

8.8

15.6

307

508

(39.5)

Effective Tax Rate (%)

35.1

35.8

(71)bp

34.1

103bp

31.1

30.4

68bp

Source: Company, Angel Research

January 28, 2016

South Indian Bank | 3QFY2016 Result Update

Exhibit 2: 3QFY2016 performance analysis (standalone)

Particulars

3QFY16

2QFY16

% chg (qoq) 3QFY15

% chg (yoy)

Balance sheet

Advances (` cr)

39,909

39,556

0.9

36,394

9.7

Deposits (` cr)

53,441

53,036

0.8

48,459

10.3

Credit-to-Deposit Ratio (%)

74.7

74.6

10bp

75.1

(42)bp

Current deposits (` cr)

2,130

2,157

(1.3)

1,826

16.6

Saving deposits (` cr)

10,177

9,915

2.6

8,598

18.4

CASA deposits (` cr)

12,307

12,072

1.9

10,424

18.1

CASA ratio (%)

23.0

22.8

27bp

21.5

152bp

CAR (%)

11.7

11.9

(20)bp

11.4

32bp

Tier 1 CAR (%)

9.4

9.6

(20)bp

10.0

(61)bp

Profitability Ratios (%)

Cost of deposits

7.38

7.53

(15)bp

8.0

(62)bp

Yield on advances

11.21

11.38

(17)bp

11.5

(25)bp

Reported NIM

2.92

2.81

11bp

2.5

42bp

Cost-to-income ratio

53.0

58.2

(517)bp

54.3

(128)bp

Asset quality

Gross NPAs (` cr)

1,108

892

24.2

661

67.6

Gross NPAs (%)

2.75

2.24

51bp

1.8

95bp

Net NPAs (` cr)

716

550

30.3

380

88.6

Net NPAs (%)

1.80

1.39

41bp

1.0

76bp

Provision Coverage Ratio (%)

50.3

55.3

(501)bp

60.4

(1012)bp

Slippage ratio (%)

3.9

2.4

155bp

1.8

212bp

Loan loss prov. to avg assets (%)

0.6

(5)bp

0.4

19bp

Source: Company, Angel Research

Moderate growth in Advances

The bank’s advances and deposits grew at a moderate pace of

9.7% and

10.3% yoy respectively, during the quarter. Within advances, the SME+Agri loan

book grew at a healthy pace, ie of 20.8% yoy, while the corporate book grew by

10.2% yoy. The bank is shifting its focus to retail, SME and agriculture loans.

During the quarter, retail advances continued to dip; they declined by 4.6% yoy as

gold loans continue its downward trend. The cost-to-income ratio for the quarter

was at 53.0% and the Management expects to improvise on the same, going

forward.

CASA deposits grew by 18.1% yoy and the CASA ratio improved to 23.0%, during

the quarter. The Reported NIM for the quarter increased by 11bp qoq to 2.92%

while it increased by 42bp yoy. The bank reiterated its NIM guidance in the range

of 2.75-2.80% for FY2016.

January 28, 2016

South Indian Bank | 3QFY2016 Result Update

Exhibit 3: Steady business growth

Exhibit 4: CASA ratio improves qoq

Advances yoy growth (%,)

Deposits yoy growth (%)

16.0

(%)

23.03

14.0

22.76

22.28

21.51

12.0

20.59

10.0

8.0

6.0

4.0

2.0

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

Source: Company, Angel Research

Source: Company, Angel Research; Note : Excluding FCNR, RFC

Exhibit 5: NIM rises qoq

Exhibit 6: Yield on advances dips sequentially

(%)

3.00

11.8

2.92

2.81

11.61

2.80

11.6

2.70

11.49

11.46

11.38

2.60

2.54

11.4

2.50

11.21

2.40

11.2

2.20

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

Source: Company, Angel Research; Note: *cumulative

Source: Company, Angel Research

Healthy growth in non-interest income (excluding treasury)

With regards to other income, all components except for fee income (other than

the sale of investment) improved and the company expects the same trend to

continue. Other income excluding treasury climbed 26.1% yoy to `103cr, while

treasury gains declined by 36% on a yoy basis. Total other income however saw a

decline of 4.4% yoy.

Asset quality slips further

On the asset quality front, the GNPA ratio increased by 51bp qoq to 2.75%, while

the NNPA ratio came in at 1.80% as compared to 1.39% in 2QFY2016. SIB has

been reporting high slippages from the corporate book since the last few quarters.

Slippages for 3QFY2016 were at `367cr which is essentially because of some

trading accounts including gold and also some contracting accounts. The bank has

expressed that it has zero divergence with the regulator and it has completely

reckoned and provided for fully as per the guidelines of the regulator. The bank

did not participate in 5/25 refinancing in 3QFY2016, but has 1 account under

SDR of ~`150cr. The total outstanding standard restructured book as at the end of

the quarter stood at `1,930cr.

January 28, 2016

South Indian Bank | 3QFY2016 Result Update

Outlook and valuation

Issues pertaining to asset quality continue to be a key concern for the bank. Going

forward, asset quality pressures could be detrimental to the bank’s growth. Given

the current macro environment, we recommend a Neutral rating on the stock. At

the current market price, the stock trades at 0.7x FY2017E ABV.

Exhibit 11: Recommendation summary

CMP

Tgt. Price

Upside

FY2017E

FY15-17E

FY2017E

Company

Reco.

(`)

(%)

P/ABV (x)

Tgt. P/ABV (x)

P/E (x)

EPS CAGR (%)

RoA (%)

RoE (%)

HDFCBk

Buy

1,036

1,262

21.8

3.1

3.8

17.0

22.4

1.9

19.7

ICICIBk*

Buy

237

304

28.3

1.6

1.7

9.7

13.4

1.6

14.7

YesBk

Buy

677

825

21.8

1.8

2.2

9.7

20.5

1.6

19.6

AxisBk

Buy

415

531

27.9

1.7

2.2

9.5

18.4

1.8

18.9

SBI*

Buy

184

237

28.4

0.9

1.0

7.5

17.8

0.7

12.7

FedBk

Neutral

0.9

8.6

(2.9)

0.9

10.8

SIB

Neutral

0.7

5.6

21.6

0.7

11.6

BOB

Neutral

130

0.7

6.2

17.5

0.6

10.6

PNB

Neutral

0.4

3.4

28.5

0.7

12.0

BOI

Neutral

100

0.3

0.7

3.0

14.0

0.3

7.6

IndBk

Neutral

0.3

3.1

19.4

0.6

8.6

Vijaya Bank

Neutral

0.4

4.7

14.1

0.4

8.8

OBC

Neutral

114

0.2

0.3

2.5

65.5

0.5

9.4

Allahabad Bank Neutral

0.2

2.0

56.2

0.6

11.9

UnionBk

Neutral

130

0.4

0.3

3.3

18.1

0.6

11.4

CanBk

Neutral

190

0.3

0.2

2.7

12.0

0.6

11.2

IDBI#

Neutral

0.4

0.5

4.2

61.6

0.6

9.3

DenaBk

Neutral

0.3

0.4

3.6

45.6

0.4

7.9

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), ^#Without adjusting for SASF

Company Background

South Indian Bank (SIB) is a small old generation private sector bank with ~83% of

its branches in southern India (large base in Kerala and Tamil Nadu). Like Federal

Bank, SIB also has a large NRI customer base, accounting for ~28% of its total

deposits. The bank was aggressively focusing on the gold loans segment. However

the focus has now been shifted to retail loans (especially on housing and auto loan

segments) and on the SME loans segment.

January 28, 2016

South Indian Bank | 3QFY2016 Result Update

Income statement (standalone)

Y/E March (` cr)

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Net Interest Income

791

1,022

1,281

1,399

1,366

1,483

1,660

- YoY Growth (%)

39.2

29.2

25.4

9.2

-2.3

8.6

11.9

Other Income

197

247

335

368

497

481

524

- YoY Growth (%)

(5.6)

25.6

35.5

10.0

34.9

(3.2)

8.9

Operating Income

988

1,269

1,616

1,767

1,863

1,965

2,185

- YoY Growth (%)

27.2

28.4

27.3

9.4

5.4

11.2

Operating Expenses

463

617

767

883

1,047

1,161

1,248

- YoY Growth (%)

26.3

33.5

24.3

15.1

18.6

10.9

7.5

Pre - Provision Profit

525

652

849

884

816

803

936

- YoY Growth (%)

27.9

24.0

30.2

4.2

-7.7

(1.6)

16.6

Prov. and Cont.

193

155

371

280

242

- YoY Growth (%)

84.4

(0.7)

143.3

(19.4)

138.5

(24.5)

(13.5)

Profit Before Tax

446

572

656

729

446

524

694

- YoY Growth (%)

21.3

28.5

14.6

11.1

-38.9

17.5

32.6

Prov. for Taxation

153

171

154

221

138

181

240

- as a % of PBT

34.3

29.8

23.4

30.4

31.1

34.6

PAT

293

402

502

508

307

342

454

- YoY Growth (%)

25.1

37.3

25.1

1.0

-39.5

11.4

32.6

Balance sheet (standalone)

Y/E March (` cr)

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Share Capital

113

134

137

Reserve & Surplus

1,734

2,057

2,873

3,234

3,454

3,716

4,067

Deposits

29,721

36,501

44,262

47,491

51,913

56,066

61,672

- Growth (%)

29.2

22.8

21.3

7.3

9.3

8.0

10.0

Borrowings

323

1,020

2,531

2,038

2,198

2,418

Tier 2 Capital

265

200

195

190

185

Other Liab. & Prov.

962

1,111

1,242

1,394

1,380

1,475

1,682

Total Liabilities

32,820

40,370

49,795

54,984

59,116

63,783

70,162

Cash balances

1,828

1,572

1,697

2,201

2,442

2,803

3,084

Bank balances

638

1,069

2,639

1,017

1,154

1,245

1,369

Investments

8,924

9,400

12,524

14,352

16,717

17,081

17,966

Advances

20,489

27,281

31,816

36,230

37,392

41,131

46,066

- Growth (%)

29.5

33.1

16.6

13.9

3.2

10.0

12.0

Fixed Assets

357

378

396

412

479

517

569

Other Assets

585

671

724

772

933

1,007

1,108

Total Assets

32,820

40,370

49,795

54,984

59,116

63,783

70,162

- Growth (%)

28.5

23.0

23.3

10.4

7.5

7.9

10.0

January 28, 2016

South Indian Bank | 3QFY2016 Result Update

Ratio Analysis (standalone)

Y/E March

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Profitability ratios (%)

NIMs

2.8

2.9

2.7

2.5

2.8

Cost to Income ratio

46.8

48.7

47.5

50.0

56.2

59.1

46.8

RoA

1.0

1.1

1.0

0.5

0.6

1.0

RoE

18.5

21.6

20.5

16.6

9.2

9.5

18.5

B/S ratios (%)

CASA ratio

21.5

19.7

18.6

20.7

20.8

21.6

21.5

Credit/Deposit ratio

68.9

74.7

71.9

76.3

72.0

73.4

68.9

Net worth/ Assets

18.4

19.7

18.4

17.2

17.0

17.1

18.4

CAR

14.0

11.5

12.4

12.2

12.1

14.0

- Tier I

11.3

11.5

9.9

10.8

10.7

10.6

11.3

Asset Quality (%)

Gross NPAs

1.1

1.0

1.4

1.2

1.7

2.3

1.1

Net NPAs

0.3

0.8

1.0

1.3

0.3

Slippages

0.7

0.8

1.9

2.0

2.1

2.3

0.7

NPA prov / avg. assets

0.1

0.3

0.1

Provision Coverage

73.9

71.4

56.7

56.5

56.6

54.9

73.9

Per Share Data (`)

EPS

2.6

3.5

3.8

2.2

2.5

2.6

ABVPS (75% cover)

15.0

17.8

20.4

22.8

23.7

25.1

15.0

DPS

0.5

0.6

0.7

0.8

0.5

Valuation Ratios

PER (x)

7.2

5.2

4.9

8.3

7.4

7.2

P/ABVPS (x)

1.2

1.0

0.9

0.8

0.7

1.2

Dividend Yield

2.7

3.2

3.8

4.3

2.9

2.7

DuPont Analysis

NII

2.7

2.8

2.7

2.4

2.7

(-) Prov. Exp.

0.3

0.2

0.4

0.3

0.6

0.5

0.3

Adj NII

2.4

2.6

2.4

1.7

2.0

2.4

Treasury

0.1

0.3

0.2

0.1

Int. Sens. Inc.

2.6

2.7

2.5

2.0

2.2

2.6

Other Inc.

0.5

0.6

0.5

Op. Inc.

3.1

3.3

3.2

3.1

2.6

2.7

3.1

Opex

1.6

1.7

1.8

1.9

1.6

PBT

1.5

1.6

1.5

1.4

0.8

0.9

1.5

Taxes

0.5

0.3

0.4

0.2

0.3

0.5

RoA

1.0

1.1

1.0

0.5

0.6

1.0

Leverage

18.4

19.7

18.4

17.2

17.0

17.1

18.4

RoE

18.5

21.6

20.5

16.6

9.2

9.5

18.5

January 28, 2016

South Indian Bank | 3QFY2016 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,

Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with

CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is

a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number

INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing

/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial

ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /

managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst

has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity

of the company covered by Analyst.

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the

companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine

the merits and risks of such an investment.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable

sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this

document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.

Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot

testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.

While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be

regulatory, compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from

or in connection with the use of this information.

Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the

latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may

have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

South Indian Bank

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

January 28, 2016