Wednesday, March 3, 2010

South Indian Bnk - adding 50 brnchs per year BUY; Tgt:Rs180

South Indian Bank

Reco: BUY

CMP: Rs. 146

Target Price: Rs. 180

Giving what is due

We believe that South Indian Bank's valuations at 1.0x FY11E ABV are not reflecting the transformation in quality of its earnings. Over FY06-09, SIB has consolidated its position by channelising its resources in core banking business. Focusing on core banking has helped SIB weed out volatitlity from its earnings (1.0% core RoAs) and made them more consistent, though its valuations have not taken note of this transformation.

With consolidation phase being over, SIB has set ambitious growth plans for itself. We expect SIB to add 50 branches per annum over FY10-13E with clear focus on the northern region. With branch expansion in non-south regions, we expect SIB to almost double its loans over FY09-12E to Rs240bn, a CAGR of 25.4%. We expect the earnings to grow at a CAGR of 30% over FY09-12E, driven by NIMs of 3.0% and low credit costs. We believe that SIB's robust and quality RoEs of 20% over FY09-12E warrant a re-rating of its valuations. We initiate coverage with a BUY rating and a target price of Rs180.

 

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