South Indian Bank shares rally on Wednesday after it posted healthy growth in Q1 gross advances and deposits. The shares jumped more than 3.5% on BSE. Following the Q1 update, brokerage ICICI Direct has recommended buying this Kerala-based private sector bank with a potential upside of over 13% going forward.
At the time of writing, South Indian Bank's shares traded at an intraday high of ₹20.44 apiece, up by 3.55% on BSE.
On the previous day, the bank's shares stood at ₹19.74 apiece.
In June 2023 quarter, the bank's gross advances stood at ₹74,107 crore, up by 14.53% from ₹64,704 crore in Q1 of the previous fiscal. Total deposits stood at ₹95,524 crore in Q1FY24 as against ₹88,196 crore in Q1FY23, registering a growth of 8.31%.
Further, in Q1, CASA came in at ₹31,171 crore up by 2.76% YoY. However, the CASA ratio contracted by 176 basis points to 32.63% versus 34.39% in Q1FY23.
For the bank, in its research note dated July 3, ICICI Securities analyst Vishal Narnolia said, "Expect credit growth in-line with industry at 12-13% in FY24-25E. Steady liabilities mix, repricing of ~65% of deposits, launch of new retail products & focus on high-yielding segment (currently at ~3.6%) is seen to drive ~10-20 bps improvement in margins. Gradual improvement in efficiency (~80-100 bps improvement in CI ratio) and moderation in net slippages (expected below 1% & NNPA below 1.5%) is seen to drive RoA to ~0.8% on a conservative basis in FY24-25E."
Also, Narnolia added, "With business transformation imbibed in the business process, transition in leadership is expected to remain smooth with continued traction in growth and profitability. We assign BUY rating to SOUBAN amid anticipation of continued gradual improvement in RoA & healthy business growth."
Lastly, he added, "We also derive comfort from its inexpensive valuations (~0.5x FY25E ABV, 4x FY25E EPS)," adding, "We value SOUBAN at ₹23 i.e. 0.7x FY25E ABV factoring expected RoA at 0.7-0.8% in FY24-25E."
South Indian Bank is old private sector bank based out of Kerala. The bank has undergone business transformation which has led to gradual improvement in business performance over past years.
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