We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• In Q3FY19, South Indian Bank (SIB) reported decent loan growth at 15% YoY led by 29% YoY growth in pure retail loans while corporate loan segment grew by 14% YoY. Within retail loans, gold loans/ services & traders/ housing loans grew by 38%/29% /31% YoY.

• While there has been stress on asset quality with slippages in Q3FY19 at 4.7% ann., impact on NPA ratios was relatively controlled (27bp/38bp QoQ increase in GNPA/NNPA ratios). This was driven by healthy reductions of Rs 380cr. Slippages in agriculture were benign at 0.04% v/s 0.22% in 2QFY19. Calculated PCR declined to 28.3%.

• SIB is focused on improving the granularity in its loan book along with strengthening its fee income and margin profile. With its balance sheet getting significantly cleansed and slippages in Agri/SME/Retail segment benign, we expect operating performance to improve, though lower PCR remains an overhang. We also expect SIB to benefit from any M&A activities taking place in other small private banks.

• We have a Buy with a target price of Rs 20.