Buy This Scheduled Bank Stock, Can Surge 28%: Anand Rathi

Stock-broking firm Anand Rathi sees potential return of nearly 27.78% from the stock of the South Indian Bank. This schedule bank commenced its business in January 1929 and was the first one to open a currency chest on behalf of the RBI in April 1992.

The brokerage firm feels that the bank will focus on its profitability in the future, as in its fourth quarter performance, there was an improvement in margins.

Q4FY23 performance

As per Anand Rathi's research note, margin expansion and higher non-interest income has kept South Indian Bank's operating performance strong with the 2,100bps, QOQ better cost-to-income ratio, to approximately 53%. The strong PPoP and modest provisions kept profitability strong with the return on assets (ROA) at 1.26%. Asset quality and PCR improved.

Slippages for the quarter were Rs 3.6 billion (2% of loans), better than the brokerage firm expected. With stress from the legacy book already recognized and GNPA from the new book post-Oct 20 (~Rs415bn) at 9bps, was noted by the brokerage firm.

Valuation and rating

Anand Rathi expects that the slippage rate going ahead would be held roughly below 2%. With stress from the legacy book already recognized, the focus now shifts to profitability. "We expect the bank to deliver a sustainable 1% RoA from FY25. We maintain our Buy rating, with a higher 12-month target price of Rs 23 per share, valuing the stock at 0.6x P/ABV on its FY25e book," it said.

Dividend details

Further, South Indian Bank directors, in the board meeting held on May 11, recommended a dividend of Re 0.30 per equity share of the face value of Re 1 each (30%) for the financial year ending March 31, 2023.

It is subject to the approval of members at the ensuing annual general meeting. No record date or book closure details were shared by the company.

Share price movement

The latest closing price of South Indian Bank stock is Rs 17.07 per share, which has declined by 3.34% on an intraday basis. In the last one year and over three years, the share price has surged massively by 112.58% and 230.17%.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the author, and the brokerage firm are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.