What is Gopal Kavalireddi's view on the South Indian Bank stock for investment?

Written on 24th Nov, 2017

South Indian Bank, based out of Kerala, is one of the few private banks which is available at a price less than Rs. 40. If you consider the other banks in the same price range like Bank of Maharashtra, Dena Bank, Indian Overseas Bank, UCO Bank and United Bank of India, they receive very less coverage from brokerages as well as analysts as most of them are public sector banks.

The stock has given a good 64% return in this year itself.

Though I have written earlier also that, I find value in investing in this stock and hence, have included in “The List” of 26 stocks, I would like to bring you the views of 2 brokerages - Kotak and Prabhudas Liladher on the same.

Hope, this info provides an understanding of why both brokerages have suggested a buy at levels of Rs. 30 or so.

There are 2 banks that Kotak Securities had recommended in its Nov 1 Research report and SIB[1] was one of them. Also, in a detailed report on SIB they had written the following: http://www.kotaksecurities.com/p...

Key Highlights of South Indian Bank’s Q2FY2018 Result:

South Indian Bank's Q2FY2018 Result was quite below our expectations, however, we continue to reiterate our BUY on the stock looking at its attractive valuation

• South Indian Bank (SIB) reported a 96.1% yoy and 95.7% qoq fall in its net profit for Q2FY2018 to Rs.43.20 million as compared to Rs.1,105.20 million reported in Q2FY2017 and Rs.1014.70 million reported in Q1FY2018 mainly because of a 3.5 times yoy and 2 times qoq rise in Provisions during the quarter. This steep rise in Provisions is consequent to depreciation of Rs.2,523.9 million on account of diminution in Net Asset Value of Investments in Security Receipts declared by ARC (Asset Reconstruction Company)
• However, Operating profit for the quarter grew by 54.8% yoy and 21.3% qoq to Rs.4,602.70 million;
• Net Interest Income for the quarter grew by 13.0% yoy to Rs.5,032.20 million as compared to Rs.4,451.80 million in Q2FY2017 and 9.2% qoq from Rs.4,607.10 million;
• During the quarter the bank reported a fraud of Rs.285 million at one of its branches. The loss on account of this fraud will be accounted over a period of 4 quarters which was commenced during the September 2017 quarter. We believe that there won't be a major impact on the banks financials as the bank has an insurance cover of Rs.240 million against such incidents in place

Prabhudas Liladher is also of the same view that the stock is under priced for now and expects a target of Rs. 37[2] in the near future.

They have provided the following valuations in their research report, the link of which is https://www.plindia.com/SampleRe...:

Conclusion:

As many of the readers already know, I don’t and cannot recommend buying and selling of stocks as equity as an investment is a risky asset class. I am not a SEBI registered advisory or a stock broker or a financial planner.

Since I am highlighting the concepts of portfolio management, through “The List” I had included this stock in the same. But if investors want to get a better view or analysis of this stock, they can read the Kotak Securities as well as Prabhudas Liladher advisory report on South Indian Bank, the links of which are given in the footnotes.

Stock graph credits: Fyers - Your Next-Generation Online Stockbroker

Footnotes

[1] http://www.kotaksecurities.com/p...

[2] https://www.plindia.com/SampleRe...