Analyst Meet Note South Indian Bank NOT RATED TP - Key Stock Data CMP Rs9 Bloomberg / Reuters SIB IN/ SIBK.NS Potential upside / downside - Sector Banking Revamping to remain competent Previous Rating - Shares o/s (mn) 1,810 Summary V/s Consensus Market cap. (Rs mn) 16,668 We attended analyst meet hosted by South Indian Bank (SIB) which showcased its vision for EPS (Rs) FY21E FY22E FY23E Market cap. (US$ mn) 227 2024. Management highlighted its strategies for near to long term with focus on 6Cs, launching new product; creating robust operational team supported by technology platform and IDBI Capital - - - 3-m daily average value (Rs mn) 256.9 revamping credit policy with focus on quality. Also, leveraging existing and new talent pool to Consensus 1.0 1.8 3.1 52-week high / low Rs11.40/4.85 improve underwriting through training and experts, build strong analytical tools for portfolio, % difference - - - Sensex / Nifty 47,613 / 13,933 and improve collection through analytics, managing NPA through focus on recoveries and rationalization of branches and ATMs. Bank lays its vision for 2024 with philosophy of “Fair to customers, Fair to bank”. In Q2FY21, NII grew by 13.5% YoY while PAT declined by 23.0% YoY led Shareholding Pattern (%) Relative to Sensex (%) by increase in provisions; ROA at 0.3%. However; on asset quality front, GNPA and NNPA Promoters 0.0 125.0 reduced to 4.9% and 2.6% respectively. Bank targets to achieve RoA at 1% and RoE at 13% by FII 8.6 110.0 FY24. At CMP, stock is trading at P/BV of 0.3x FY23 consensus estimates. DII 1.0 95.0 Key highlights 80.0 Public 90.4 Focus on 6Cs for next 3 years- Bank has lay down a strategy for growth in next 3 years by 65.0 focusing on 6Cs- a) capital- Bank will be raising capital (equity + debt) amounting to Rs12.5bn 50.0 in tranches with first tranche by Mar’21 b) CASA- building low cost CASA book by building Price Performance (%) 35.0 relationship at branch level while on NRI front will expand horizon to target NRI around the -1m -3m -12m world apart from middle east c) C/I ratio- reduce C/I by increasing income or reducing cost; on Jul-20 Jan-20 Jun-20 Oct-19 Oct-20 Apr-20 Sep-19 Feb-20 Sep-20 Dec-19 Dec-20 Aug-20 Nov-19 Nov-20 Mar-20 income front focus will be on non-credit related income through cross sell and up sell Absolute 21.7 33.5 (10.8) May-20 The South Indian Bank Ltd. Sensex opportunities however on cost side will optimize existing branch network with merger or Rel to Sensex 13.8 8.1 (25.4) relocation of branches or synergies with new subsidiaries by focusing on outsourcing d) Competency building- by reorienting the organizational structure by leveraging existing talent e) Financial snapshot (Rs mn) Customer focus- will approach Phygital approach at branches with personalized services for legacy Year FY2016 FY2017 FY2018 FY2019 FY2020 customers and complete digital for next gen customers f) Compliance- Bank will be focusing NII 15,097 16,754 19,655 20,197 23,175 adherence to higher integrity standards and zero tolerance for internal and external cross. Net Profit 3,333 3,925 3,349 2,475 1,046 Focus on quality asset with new product- Bank will continues to focus on Retail, MSME and EPS (Rs) 2.2 2.6 1.9 1.4 0.6 Agri. and adopt calibrated approach towards corporate while bank has drawn plan to revamp existing products and launch new retail products like LAS, SBL, IPO Funding, Dealer Funding, ABV (Rs) 27.6 23.1 21.2 17.5 18.4 Tractor funding etc. in phases w.e.f. 1st April 2021. In Corporate, focus will be on building high PER (x) 4.1 3.5 5.0 6.7 15.9 rated quality book through approach of cross sell of treasury, retail and SME products. P/ABV (x) 0.3 0.4 0.4 0.5 0.5 Focus on improvement in yield of products and strong product growth- To enhance NIM ROE (%) 8.7 8.1 6.4 4.6 1.9 bank set up target yield like for Agri- 9.2%-10%, Retail gold- 10%-11.5%, Agri. gold- 9%-10%, ROA (%) 0.6 0.6 0.4 0.3 0.1 Business loans- 9.3%-10.3% within that can leverage in SME book, Personal loan- 10%-10.5%, GNPA (%) 3.8 2.5 3.6 4.9 5.0 LAP- 10%-10.5%, Home loan- 8%-8.8%, Corporate will be doing on need basis and will look at NNPA (%) 2.9 1.5 2.6 3.5 3.3 8%-9% while overall targeting yield at 10% range However; on growth front Agri. and gold loan would be 10-12%, retail gold- 30%-35%, PL will be doubling in 1-3 years and overall CAR 11.8 12.4 12.7 12.6 13.4 targeting credit growth of 10-15% by Mar’22 and further 20%. Source: Company; IDBI Capital Research December 30, 2020 South Indian Bank | Analyst Meet Note Exhibit 1: Focus is on Retail, MSME and agriculture while Corporate segment declining YoY 100.0% 13.8% 14.1% 14.4% 13.6% 15.1% 15.3% 85.0% 23.5% 23.3% 23.7% 70.0% 23.5% 24.1% 37.0% 55.0% 24.2% 24.6% 25.0% 29.0% 32.3% 40.0% 22.6% 25.0% 38.5% 38.0% 37.1% 33.7% 28.5% 25.1% 10.0% FY16 FY17 FY18 FY19 FY20 H1FY21 Corporate Retail (incl. gold) Business loans/MSME Agriculture Source: Company; IDBI Capital Research Exhibit 2: Term deposit continues to remain major chunk of deposit 100.0% 15.9% 9.3% 16.5% 18.0% 20.1% 19.8% 4.8% 85.0% 3.9% 3.6% 4.2% 4.1% 4.2% 23.0% 70.0% 18.8% 21.1% 19.7% 19.6% 20.1% 55.0% 40.0% 61.1% 58.2% 56.1% 56.0% 59.1% 62.9% 25.0% 10.0% FY16 FY17 FY18 FY19 FY20 H1FY21 Term deposit Saving deposit Current deposit Others (incl Bulk and CD) Source: Company, IDBI Capital Research 3 South Indian Bank | Analyst Meet Note Exhibit 3: Advances across ROI decline Exhibit 4: NIM continues to remain at 2.7-2.8% level 100% 3.0% 2.8% 2.7% 2.7% 2.8% 2.8% 2.7% 85% 30% 30% 29% 29% 26% 25% 2.6% 2.5% 70% 2.3% 32% 32% 55% 32% 31% 30% 30% 2.0% 40% 1.8% 1.5% 25% 38% 39% 41% 40% 42% 43% 1.3% 10% 1.0% FY16 FY17 FY18 FY19 FY20 H1FY21 FY16 FY17 FY18 FY19 FY20 H1FY21 Kerala South Excl Kerala Rest of India NIM Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research Exhibit 5: Yield of funds declined in H1FY21 Exhibit 6: Cost remain low in H1FY21 6.7% 10.0% 9.2% 7.0% 8.5% 6.1% 8.1% 5.7% 8.5% 8.0% 7.9% 7.7% 6.0% 5.4% 5.6% 5.2% 7.0% 5.0% 5.5% 4.0% 4.0% 3.0% 2.5% 2.0% 1.0% 1.0% FY16 FY17 FY18 FY19 FY20 H1FY21 FY16 FY17 FY18 FY19 FY20 H1FY21 Yield on funds Cost of Funds Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research 4 South Indian Bank | Analyst Meet Note Exhibit 7: Yield declines Exhibit 8: Cost of deposit reduce YoY and remain at 5.6% 13.0% 11.2% 8.5% 11.5% 10.4% 7.5% 9.9% 9.5% 9.7% 10.0% 9.3% 7.0% 6.6% 6.1% 6.2% 6.2% 8.5% 5.6% 5.5% 7.0% 5.5% 4.0% 4.0% 2.5% 2.5% 1.0% 1.0% FY16 FY17 FY18 FY19 FY20 H1FY21 FY16 FY17 FY18 FY19 FY20 H1FY21 Yield on advance Cost of deposit Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research Exhibit 9: Cost-to-income remain high Exhibit 10: Cost-to-assets to ease in FY21 60.0% 56.6% 54.9% 53.9% 2.1% 51.1% 1.9% 1.8% 49.2% 1.9% 1.7% 1.7% 50.0% 47.2% 1.7% 1.7% 1.5% 40.0% 1.3% 1.1% 1.0% 30.0% 0.9% 0.7% 20.0% 0.5% 0.3% 10.0% 0.1% FY16 FY17 FY18 FY19 FY20 H1FY21 FY16 FY17 FY18 FY19 FY20 H1FY21 Cost to Income Cost to asset Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research 5 South Indian Bank | Analyst Meet Note Exhibit 11: ROE target of 13% by FY24 Exhibit 12: ROA target of 1% + by FY24 10.0% 0.7% 8.7% 8.1% 8.5% 0.6% 0.6% 0.6% 7.0% 6.4% 0.5% 0.4% 5.5% 4.6% 0.4% 0.3% 0.3% 4.0% 0.3% 2.6% 2.5% 1.9% 0.2% 0.1% 1.0% 0.1% FY16 FY17 FY18 FY19 FY20 H1FY21 FY16 FY17 FY18 FY19 FY20 H1FY21 ROE ROAA Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research Exhibit 13: GNPA % continue to remain at 4.9%-5% while PCR continue to rise 6.0% 65.2% 70.0% 55.1% 54.2% 5.0% 60.0% 42.5% 50.0% 4.0% 40.3% 41.2% 40.0% 3.0% 30.0% 2.0% 20.0% 1.0% 10.0% 3.8% 2.9% 2.5% 1.5% 3.6% 2.6% 4.9% 3.5% 5.0% 3.3% 4.9% 2.6% 0.0% 0.0% FY16 FY17 FY18 FY19 FY20 H1FY21 GNPA NNPA PCR Source: Company, IDBI Capital Research 6 South Indian Bank | Analyst Meet Note Exhibit 14: CRAR continues to remain strong 13.0% 2.8% 1.5% 2.3% 2.6% 11.0% 2.0% 2.6% 9.0% 7.0% 5.0% 3.0% 9.8% 10.9% 10.4% 10.0% 10.8% 11.2% 1.0% FY16 FY17 FY18 FY19 FY20 H1FY21 Tier I Tier II Source: Company, IDBI Capital Research Exhibit 15: Added 92 branches since FY16 and increase to 926 in H1FY21 950 149 149 800 140 141 142 143 650 272 272 245 246 248 253 500 350 449 463 464 474 508 505 200 50 FY16 FY17 FY18 FY19 FY20 H1FY21 Kerala South India (excl kerala) Rest of India Source: Company, IDBI Capital Research 7 South Indian Bank | Analyst Meet Note Exhibit 16: Standard advance above (Rs 100Cr)- BB & below book continue to increase while A rated portfolio continues to decline 100.0% 3.6% 8.3% 9.7% 14.0% 85.0% 22.7% 14.4% 21.1% 20.0% 70.0% 16.8% 16.0% 6.2% 55.0% 32.1% 40.0% 37.7% 37.4% 34.5% 24.7% 25.0% 22.8% 18.7% 22.4% 10.0% 16.9% FY18 FY19 FY20 H1FY21 AAA AA A BBB <BBB Source: Company, IDBI Capital Research 8 South Indian Bank | Analyst Meet Note Financial Summary Profit & Loss Account (Rs mn) Financial Ratios (%) Year-end: March FY17 FY18 FY19 FY20 Year-end: March FY17 FY18 FY19 FY20 Interest earned 58,471 61,928 68,765 77,638 Growth Interest expended (41,717) (42,273) (48,568) (54,463) Deposits 18.7 8.9 11.6 3.3 Net interest income 16,754 19,655 20,197 23,175 Advances 12.9 17.6 14.9 2.8 Other Income 7,156 8,373 7,262 10,458 NII 11.0 17.3 2.8 14.7 Operating Income 23,910 28,028 27,459 33,633 Pre-Provision Profit 38.1 21.9 (16.3) 32.8 Operating expenses (11,764) (13,220) (15,069) (17,176) Net Profit 17.8 (14.7) (26.1) (57.7) Employee expenses (6,765) (7,132) (8,214) (9,413) Spreads (%) Other expenses (4,999) (6,088) (6,855) (7,763) Yield on Assets 8.5 8.0 7.9 8.1 Pre-Provision Profit 12,146 14,808 12,390 16,457 Cost of Funds 6.1 5.4