South Indian Bank Q2FY25: Strong Profit, NIMs Contract, Asset Quality Improves

NII Moderate; Strong Profitability; NIMs contract; Asset quality improved

About the Stock
➡️South indian bank is private sector bank operate in south region of India headquartered in Kerala. The bank has 955 branch network and majority situated in south India. The customer bas has increased from 7.3 Mn to 7.8 Mn within one year period. The bank loan book is well diversified 40% with corporate and remaining 60% retail book includes personals, agri and business.

Strong growth in Advances and Disbursement in Q2FY25
➡️The bank has reported strong growth annually in key business parameter. Gross Advances grew 13% YoY to 84,714 Cr, with corporate segment contributing 40% of the loan book, growing at 24% and personal segment contribute 25%, growing at same pace 24% while business loan and Agriculture contribute 15% and 20% respectively. Disbursement grew 77% YoY to 76,872 Cr led by corporates book. While the bank deposit lagging behind, increased by 9% YoY and borrowings decline 56% YoY. The CASA stand at 31.8% in Q2FY25 lower by 8 bps YoY.
➡️Personal segment loan book driven by growth in mortgage loan at 75% followed by home loan loan at 42%, gold loan 11%, auto loan 18% and credit card 37%.
➡️Retail disbursement momentum help by home loan, auto loan while agriculture and personal loan remains flat annually.

NII growth moderate while PAT jump 18% led by other income and lower tax
➡️Interest income increased by 11% YoY (+2% QoQ) to 2,355 Cr driven by yield expansion and advance growth. The yield on loan expand 19 bps YoY to 7.68% while Cost of fund jump 23 bps to 4.80% result contraction in NIMs. NII grew moderate at 6% YoY (+2% QoQ) to 882 Cr due to high expansion in CoF makes contract NIMs by 7 bps. The bank’s PAT surged 18% YoY (+10% QoQ) to 325 Cr led by higher other income and lower tax expense despite the jump in credit cost. The stable the employee cost and total operating cost kick in operating leverage and boost the profitability.

Asset quality enhanced; stress book reduce
➡️Company has reduced the stress assets from 1,159 Cr in Q2FY24 to 476 Cr in Q2FY25. Bank has churned 75% of overall loan book since covid level and 93% current GNPA from old book. GNPA/NNPA stood at 4.40%/1.31% decline by 56bps/39 bps YoY (10bps/13 bps QoQ). Slippages ratio decline to 0.36% in Q2FY25 vs 0.42% in Q2FY24. The provision coverage ratio expand 290 bps YoY to 80.7% vs 77.8% in Q2FY24.

Valuation and Key metrics
➡️Currently the stock is trading at 0.76 price to book value. The yield on advances jump 19 bps to 7.68% while CoF decline by 23 bps YoY to 4.80%. This result in contraction in NIMs by 7 bps to 3.24%. The increased in deposit rate to maintain and increased the deposit growth led to higher CoF and contract NIMs as Yield is stable.

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