South Indian Bank?s (SIB) Q1FY14 PAT at R115 crore was in line with our estimate, but below consensus. Among key highlights, NIMs declined 20 bps q-o-q to 2.93%? led by R15 crore interest income reversal (impact of bps); and slippages came in higher at R220 crore (2.7% vis-?-vis 2.0% in Q4FY13). This, coupled with modest recoveries/ upgrades, led to headline GNPLs inching up to 1.57% (1.36% in Q4FY13).
Loan growth moderated to 14% y-o-y owing to a run-down in the corporate book; and higher trading gains (>1.5x YoY) used to provide for Nafed ? technically writing it off.
In light of the falling provision coverage ratio (PCR; < 60% from 70% plus historically) and lower earnings CAGR of <17% over FY13-15E (historical run rate >30%) we maintain ?hold?. With adjusted book value (ABV) falling owing to lower PCR we revise our target price to R27 (R28 earlier).
SIB?s slippages were higher, led by four accounts contributing ~R190 crore. However, the management indicated that three of them are technical in nature and are likely to be recovered in near term.
Despite R150-crore write offs (Nafed), GNPLs came in higher at R490 crore (net addition of R59 crore) owing to modest recoveries and upgrades. There was no restructuring during the quarter; however, adjusting for write-off of R150 crore on account of Nafed, the outstanding restructured book came in lower at R1,500 crore.