South Indian Bank

Stock Opportunities Untested - but worth a good look
41

CONFERENCE CALL - from Capital Markets

South Indian Bank

Government’s Uday Scheme targeted towards power Discoms will immensely benefit SIB as it as 46% of its standard restructured asset from this segment

South Indian Bank conducted concall after it declared results for December 2015 quarter. V. G. Mathew, Managing Director & CEO of the Bank addressed the call.
Highlights of the call:

Deposits grew 10.28% to Rs 53,441 crore as on December 2015.

Core Deposits increased 17.01% y-o-y to Rs 45,503 crore.

Non-Core Deposits decreased 17.06% y-o-y to Rs 7,938 crore.

Term Deposits increased 8.15% y-o-y to Rs 41,134 crore.

CASA Deposits increased 18.06% y-o-y to Rs 12,307 crore.

Advances grew 9.74% to Rs 40,601 crore as on December 2015.

Advances are growing across regions. Kerala grew 16% and rest of India grew 18%. South India (excluding Kerala) fell 3%.

Agri and MSME advances increased by 20.82% on y-o-y basis.

Home loan Portfolio increased 30.49% on y-o-y basis.

The growth is a reflection of the management’s efforts on increasing credit growth through the Retail and SME platforms.

It shall continue to focus on Home Loans and Auto Loans for growth opportunities.

Total income grew 6.4% to Rs 1,560.98 crore in December 2015 quarter.

Net Interest Income increased 27.14% y-o-y to Rs 406.72 crore.

Other Income decreased 4.38% to Rs 153.32 crore.

Restructured Assets stood at Rs 2,236 crore as on December 2015.

Restructured Standard Advances were Rs 1,930 crore against Rs 2,000 crore q-o-q.

Restructured NPA Advances stood at Rs 306 crore against Rs 313 crore q-o-q

Major Restructured standard Advances include Power Distribution Companies which constitute 46% (Rs 885 crore).

Gross NPA rose from Rs 661.27 crore as of December 2014 and from Rs 892.25 crore in September 2015 quarter to Rs 1108.01 crore as of December 2015.

In percentage terms, %GNPA rose from 1.80% as of December 2014 and from 2.24% September 2015 quarter to 2.75% as of December 2015.

Net NPA rose from Rs 379.56 crore as of December 2014 and from Rs 549.56 crore in September 2015 quarter to Rs 715.98 crore as of December 2015.

In percentage terms, %NNPA rose from 1.04% as of December 2014 and from 1.39% September 2015 quarter to 1.80% as of December 2015

Its strategy to focus on Retail & SME Loans will help in curbing NPA’s which have arisen out of its past exposures to Corporate Sector.

It hopes to penetrate further in the existing set of customers for retail business.

Capital Adequacy Ratio (CRAR) of the Bank, computed as per Basel III guidelines stood at 11.70% against 11.38% in December 2014 quarter.

Tier I Capital Ratio was 9.42% and Tier II Capital Ratio was 2.28%.

The bank had total of 831 branches and 1,272 ATM’s as on December 2015.

It opened 9 branches during the nine months. It opened 72 ATMs during the nine months.

It will focus on Improving branch profitability.

Retail hub in Cochin will increase focus on housing finance.

Two more hubs will be set up, one in South India and one in North India.

Retail Loans (excluding Gold), Agriculture & SME has grown by 18%.

Around 15% of the agriculture & SME loans are backed by additional security by way of gold.

It is slowly becoming a Banker of choice to SMEs

Cost of deposits fell from 8% in Dec 2014 quarter and 7.53% in September 2015 quarter to 7.38% in December 2015 quarter.

Cost of funds fell from 7.04% in Dec 2014 quarter and 6.71% in September 2015 quarter to 6.55% in December 2015 quarter.

Government’s Uday Scheme targeted towards power Discoms will immensely benefit SIB as it as 46% of its standard restructured asset from this segment.

The scheme aims to provide a permanent resolution to Discom issues.

To reduce its restructured asset portfolio the company is shifting of focus from large corporate to SMEs and is defocusing from Power & Infra Sectors. It has also formed a special recovery cell & asset monitoring cell.

Asset quality stress in the corporate sector is bottoming out and due to increased focus on retail lending, stress in the overall loan book is expected to ease.

Provisioning Coverage Ratio stands at 50.29%.

Fresh Slippage / Advances ratio is extremely low across Retail, SME & Agriculture.

Strategy & Road map in place will increase CASA funds.

Its centralized processes will allow branches to focus on garnering low cost funds.

To improve share of other income the bank will focus on increasing banking services for SME, Retail & NRI clients, enhance treasury capabilities & increase bench strength and expand PoS & ATM Network.

To strengthen its SME base the bank will have cluster based approach in industry hubs and dedicated vertical to penetrate SME banking. It has appointed dedicated DGM to ensure focus and better coordination with regions.

The bank hopes to increase the fee income and improve its NIM.

The management firmly believes that the NPA has hit bottom.

It has 2020 vision of creating retail banking powerhouse.

Cost to income ratio is expected to come down to 55% by the end of FY 2016. As of December 2015 it stood at 56.60%.

If the market improves the bank will go for capital raising.

This quarter there was no account in 5/25 scheme. For the nine months it had one account worth Rs 91 crore.

The company has provided completely in line with the RBI guidelines and currently has zero divergence with the RBI.

The decline in Loan-to-Value (LTV) ratio and price volatility has led to the drop in gold loan book.

Business growth target for the year is 15% and for the next year is also 15%, if the current challenging economy continues or else it will try for higher growth target.

3 Likes
42

South Indian Bank price has continuously fallen as has for most of the banking industry. I am putting down a few points why this could be an interesting entry point for South Indian Bank (price 17):

  1. Price to Adjusted Book (Net worth - Net NPA) has fallen to 80% now.
  2. Banking industry has had a painful few months but as UDAY starts to help with restructured book, amount of restructured assets in this bank will fall dramatically.
  3. Thus the provisions from Restructured Assets can be used to manage NPA provisions.
  4. Looking at this in terms of 3 year window, one can easily see that the price goes to book value of around 35 by June 2019 or a double from here.

Overall, while the activity has come down in this thread, I think this is the right time to get greedy. Happy to hear counter views to my thesis.

1 Like
43

South Indian Bank looks a good value buy. But the key monitarable has been the NPA’s which has been deteriorating QoQ. If we can believe what the management is saying then we are at peak NPA levels and things can improve only from here. Also UDAY should significantly help them is what managment is claiming. This is another key moniterable.

Disc - Invested about an year back at 24 levels. Slowly buying since 17 levels. Will increase further allocation based on how things pan out in next 2 quarters.

44

CONFERENCE CALL - from Capital Markets

Steps up its focus on Retail and MSME loans

South Indian Bank conducted concall on 13th May 2016 after it declared results for March 2016.
V. G. Mathew, Managing Director & CEO of the Bank addressed the call.

Highlights of the call:

  • In keeping with its vision to become a Retail Banking Power House by the year 2020 the bank recently appointed International Finance Corporation to provide advisory support on the medium and long term strategy. This will enable the bank to achieve significant growth in retail, agriculture and SME sectors.

  • It has also entered into a Memorandum of Understanding with NSIC which will facilitate loans to MSME and thus strengthen the MSME portfolio of the Bank

  • The bank has stepped up its focus on Retail and MSME loans keeping in line with the long term philosophy of the Bank resulting in ease of stress in the overall loan book.

  • Its strategy of lending to Retail and SME with the focus on improving operating performance is leading to better performance in these challenging times.

  • In FY 2016 NIM stood at 2.73% against 2.70%.

  • Deposits stood at Rs 55721 crore as on March 2016, a growth of 7.34%.

  • Core Deposits increased 14.24% to Rs 46487 crore.

  • Non-Core Deposits decreased 17.69% to Rs 9234 crore.

  • Term Deposits increased 13.65% to Rs 34059 crore.

  • CASA Deposits increased 16.59% to Rs 12459 crore. Concentrated efforts across channels and customer base have led to increase in CASA.

  • NRI Deposits have seen strong growth of 25.54%.

  • Advances stood at Rs 41785 crore as on March 2016, up 10.02%.

  • Agri and MSME advances increased 20.99%.

  • Home loan portfolio increased 24.12%.

  • The Bank has been focusing on various Retail segments for asset growth. These segments namely Agriculture, MSME, Home Loans and Auto Loans have registered substantial growth y-o-y.

  • Total Income stood at Rs 6074.62 crore for FY FY16.

  • Restructured Assets stood at Rs 1392 crore as on March 2016.

  • Restructured NPA stood at Rs 443 crore.

  • Restructured Standard Advances stood at Rs 949 crore.

  • Major Restructured Standard Advances include Power Distribution Companies (23%) and Construction EPC Companies (42%).

  • Government’s Uday Scheme targeted towards power Discoms will immensely benefit SIBs.

  • Benefits of Uday are now getting reflected in Restructured Book.

  • The UDAY scheme of the Government has led to a drop in standard restructured loans to discoms from Rs 884 crore to Rs 214 crore.

  • The company had Capital Adequacy Ratio of 11.82% based on Basel III guidelines at end of March 2016

  • Tier I Capital Ratio is at 9.83%.

  • Tier II Capital Ratio is at 1.99%.

  • The bank had total of 834 branches, 42 extension counters and 1287 ATM’s as on March 2016.

  • In Kerala the bank now has 449 branches. In South India (Ex-Kerala) it has 245 branches and it now has 140 branches in the Rest of India.

  • It opened 12 Branches and 17 extension counters in FY 16.

  • It also installed 87 ATM’s in FY 16.

  • Current deposits stood at Rs 1983, up 9.08%.

  • Savings deposits stood at Rs 10476, up 18.13%.

  • Term deposits stood at Rs 34059, up 13.65%.

  • It was the first Kerala based bank to implement Core Banking Solution.

  • In FY 2016 the bank opened centralized marketing & processing centre which houses the Bank’s marketing department, retail loan hub and transaction banking department.

  • The bank plans to have cluster branches which will focus on particular geographies and open additional branches. This will improve branch profitability.

  • In March 2016 quarter the bank sanctioned 1157 housing loans. These were worth Rs 233 crore.

  • Retail Loans (Excl. Gold), Agriculture & SME has grown by 21%.

  • Around 15% of the Agriculture & SME Loans are backed by Additional Security by way of gold.

  • The bank is shifting its focus from large corporate to SMEs.

  • It is defocusing from Power & Infra Sectors

  • The bank has around Rs 200 crore provided for an SEB in Tamil Nadu. This will also be converted into investment under the Government’s Uday scheme.

  • Provisioning Coverage Ratio stands at 40.34%.

  • Total exposure to SDRs is Rs 290 crore.

  • Operating expenses growth guidance is 10-12% max in FY 2017.

  • NIM will be around 2.8%-2.9% in FY 2017.

  • Going forward to expand its retail business the bank plans to focus on retail loan products, have more efficient branches for faster processing of loans and invest in brand building.

  • The bank hopes to strengthen SME Base by having cluster based approach in industry hubs, being sole banker to SMEs for all banking needs and having dedicated vertical to penetrate SME banking.

  • To enhance asset quality the bank will granulize loan portfolio to spread out risk, have cautious approach on large corporate lending and will have special recovery cell for monitoring non performing and restructured assets.

  • It also has strategy to improve share of other Income. This will be done by focusing on increasing banking services for SME, Retail & NRI clients, enhancing treasury capabilities & increase bench strength and expand PoS & ATM Network.

  • Out of 949 crore of standard restructured book (excluding NPAs), Rs 214 crore (23%) is discoms which is of no problem. Around Rs 402 crore is from EPC, 10% is from the ship building sector. Out of all these, only EPC is likely to go into slippages, rest all does not seem to be of much problem.

  • Also at the worst case the company is looking 20% slippage from the restructured book. The economy will only improve from here so there is not much stress on the restructured book.

1 Like
45

Thank you Vishnu for the summary of the conf call…

46

CONFERENCE CALL - from Capital Markets

Corporate slippages fell from 4.42% to 0.00% q-o-q

South Indian Bank conducted concall on 11th July 2016 after it declared results for June 2016 quarter.
V. G. Mathew, Managing Director & CEO of the Bank addressed the call.

Highlights of the call:

  • South Indian Bank registered a 5% rise in Interest income to Rs 1447.23 crore in the quarter ended June 2016.

  • 4% rise in interest expenses to Rs 1076.60 crore saw net interest income (NII) rising 10% to Rs 373.63 crore.

  • Other income jumped 67% to Rs 173.44 crore, which took net total income up 23% to Rs 547.07 crore.

  • Operating expenses grew 9% to Rs 287.59 crore, after which OP rose 43% to Rs 259.48 crore.

  • Provision and contingencies rose 44% to Rs 114.11 crore after which PBT rose 43% to Rs 145.37 crore.

  • As tax expenses grew 39% to Rs 50.31 crore, net profit increased 46% to Rs 95.06 crore.

  • Slippages in June 2016 quarter was only from the retail side. The total amount of fresh slippage is Rs 122 crore and there is Rs 7 crore additions in the existing accounts. Therefore, Rs 129 crore is the total increase in the non-performing asset (NPA). That compares with Rs 845 crore that it saw in the previous quarter.

  • The recoveries were Rs 29 crore and there was an upgrade of Rs 10 crore, so there was a reduction of a total of Rs 39 crore. Therefore, the bank had a net-net increase of Rs 90 crore and this is all in the retail side including micro, small and medium enterprises (MSMEs), agri kind of sector and not from the corporate book.

  • The sectors involved are food processing, trading, contractors and metals, textiles are the areas.

  • Slippages in non-performing assets are expected to be around 20-25% of the standard restructured books over the whole year.

  • 20-25% of the standard restructured book would be about Rs 200-250 crore for the full year. The bank also hopes to do recoveries of Rs 200-300 crore.

  • In fact the bank’s problem (which the management has been explaining earlier also) is confined to the large corporate book. In the large corporate book the management does not expect any more slippages from the standard asset book but there is a restructured standard advance portfolio which is around Rs 945 crore which is restructured standard at the moment and one cannot rule out any slippages in that. So there could be some but that is about all. The management does not expect any major slippages in the corporate book coming from the standard asset book.

  • The projected loan book growth is around 17%. The major retail segments of agri, MSME, home loan, loan against property (LAP) and gold would all grow by 20% but the large corporate book will see a small degrowth and therefore net-net the bank expects 17% growth during this year.

  • Net interest margin (NIM) for the bank was 2.74% in the June 2016 quarter, which was 20 basis points more on a year-on-year basis.

  • The management expects to maintain at least 2.74% NIM but its target is 2.80% to 2.85% NIM for full year.

  • Gross NPA ratio, in worst case scenario, would be more or less at same level - that is the recoveries are same as the additions that can come in.

  • In the corporate book no stress is foreseen. From the standard asset book, the bank does expect any NPAs to happen. There could be some restructuring by way of strategic debt restructuring (SDR) etc. There are some cases which are now in progress.

  • The bank does not have S4A case at the moment but SDR has been invoked in about two-three accounts and that number is coming to around Rs 540 crore or so - that’s the number in which the total SDRs have been invoked in about three companies and that is more in the cement, engineering, procurement and construction (EPC) space and also in steel to one or two accounts.

  • The bank does not have much exposure in the metal space.

  • The bank is granulizing loan portfolio to spread out risk

  • It is currently having cautious approach on large corporate lending

  • Other income grew 67% to Rs 173 crore. To improve share of other income the bank is planning to focus on increasing banking services for SME, Retail & NRI clients, enhance treasury capabilities & increase bench strength and expand PoS & ATM Network.

  • CASA improved 96 bps to 23.24%.

  • To improve CASA the bank plans to have strategy & Road map in place to increase CASA funds. It also plans to have a centralized process allowing branches to focus on garnering low cost funds.

  • Restructured book fell 36% to Rs 1387 crore.

  • Retail Business (Ex cl. Gold) grew 20% to Rs 24609 crore during the quarter.

  • To increase its housing loan business the bank has started a retail hub in Cochin to increase focus on housing finance. Two more hubs will be set up, one in South India and one in North India.

  • In June 2016 quarter the bank had sanctioned 826 housing loan applications worth Rs 165 crore.

  • Kerala accounted for 44% of loan book, south India excluding Kerala accounted for 33% and rest of India accounted for 23% of the total loan book.

  • The bank has 838 branch network out of which 453 stood in Kerala, 256 in South India excluding Kerala and 140 in rest of India.

  • Core deposits grew 13% to Rs 48634 crore and non core deposits grew 1% to Rs 9255 crore.

  • Total deposits grew 11% to Rs 57889 crore.

  • Current deposits grew 8% to Rs 2187 crore and savings deposits grew 17% to Rs 11267 crore.

  • Total CASA grew 15% to Rs 13454 crore.

  • Term deposit grew 12% to Rs 35230 crore.

  • Retail Loans (Excl. Gold), Agriculture & SME has grown by 20%.

  • 15% of the Agriculture & SME Loans are backed by Additional Security by way of GOLD.

  • Cost to income ratio fell from 56.62% to 52.57% q-o-q and from 59.28% y-o-y.

  • Growth in other income was led by transaction fees + technology and profit on sale of investments, forex & others.

  • Investment book stands at Rs 15137 crore.

  • Gross NPA had opening balance of Rs 1562 crore. There were additions of Rs 125 crore and deductions of Rs 36 crore. Thus gross NPS closing balance stood at Rs 1651 crore.

  • Net NPA had opening balance of Rs 1185 crore. There were additions of Rs 105 crore and deductions of Rs 98 crore. Thus net NPA closing balance stood at Rs 1192 crore.

  • Government’s Uday Scheme targeted towards power Discoms benefiting SIB.

  • Benefits of Uday are getting reflected in restructured book.

  • Movement in Restructured Accounts shows shift of focus from large corporate to SMEs. It is also defocusing from Power & Infra Sectors.

  • The company had small reduction in employee also due to retirement of around 170 employees. The company had added 1000 employees for the past 4 years. So now employee recruitment is less.

  • Reserves and Surplus stood at Rs 3916 crore in June 2016 against Rs 3520 in June 2015 and 3707 crore as on March 2016.

  • Provisioning Coverage Ratio stood at 42.55%.

  • Retail slippages fell from 0.86% to 0.55% q-o-q and it grew from from 0.19% y-o-y.

  • Corporate slippages fell from 4.42% to 0.00% q-o-q and from 0.60% y-o-y.

  • Tax rate will continue to be 34.6%.

3 Likes
47

Thankyou Crazymama for sharing this quarterly summer…:clap:

48

Mohnish Pabrai name doesn’t appear in the list of the stake holder in SIB, looks like he has exited at a loss from SIB and J&K Bank bet. sometimes cloning proves costly :slight_smile:

disc: invested

2 Likes
49

Mohnish had certainly exited from SIB and J&k bank, he has also exited from GIC HF , he has increased his stake in RAIN INDUSTRIES

50

His name does not appear actually in last few quarters(surprisingly RJ blog has still not captured this exit :slight_smile: ).

May be his selling brought the price down to 17+

disc: invested

51

FII’s and NRI’s has been buying this stock in last few months bringing overall ownership to the permissible limit of 41%. Please see the news item below

Disc: invested. No transactions in last 6 months

52

Pabrai was invested in J&K till 31st mar 2016. Not sure if he has exited after that…any source?

53

2015_16.pdf (29.9 KB)

pls see the yellow highlighted column in attached file , which shows pabrai’s exit from J&K bank after march 2016

54

Please use J&K Bank’s thread to discuss topics related to that bank. This is forum for discussions about South Indian bank. Please avoid cluttering.

55

I observed - Mr. Yusuffali increased (almost doubled) his stake in SIB. And Lavender investments (Mr. Ashish Dhawan) too has increased the stake. I guess SIB is one boring stock. It is one of the safest pick in such volatile market. Management has decent targets for 2020.

56

My mistake , will take care

57

well, like you rightly said Pabrai funds exit was a great opportunity to enter into SIB , that could be one of the reasons the price was brought down to around 17.

For all reasons, the Q2 results should a real good one . NPA should be comparatively lower as SIB of late started moving away from corporate lending and the focus is currently on SME, Home loan, Vehicle , Gold Loan etc …

Looking forward to a great result !

Disc: invested

58

Decent Results. Total income up by 16%, PAT up by 18% YoY, NIM 2.75%, Not so good news - Gross NPA same as last quarter at 3.96% and Net NPA is bit down to 2.77% from 2.89% last quarter. Provisions remain high.

Improving economy, focus on SME/Retail/Agri should boost the numbers in next few quarters.

59

Check this http://www.ratestar.in/investor/Pabrai-Investment-Fund-3,-Ltd and this for Pabrai http://www.ratestar.in/investor/The-Pabrai-Investment-Fund-II,-LP. he has existed SIB and increased stake in Rain Industries.

Disc: invested

60

http://www.moneycontrol.com/news/recommendations/buy-south-indian-bank-targetrs-30-motilal-oswal_7620921.html"?port_flg=yes&utm_source=MC_INMAIL_NEWS"

After a long time, brokerages are started recommending South Indian Bank. This is in line with other banks like SBI, Federal Bank etc.

Disc - invested for last 2 + years

1 Like