Result Flash on South Indian Bank for 4QFY2011.

South Indian Bank announced its 4QFY2011 results today, registering a net profit growth of 111.7% yoy (8.5% qoq) to Rs82cr (aided by low-base of 4QFY2010 PAT due to prior-period adjustments), slightly above our estimates of Rs77cr. The key highlight of the results were strong balance sheet growth and improvement in asset quality. Currently the stock is trading at 1.3x FY2013E ABV. We may revisit our estimates and recommendation post interaction with the management.

Key highlights:

1.    The Bank saw a strong growth in its balance sheet with advances growing by 27.1% yoy and 6.8% qoq to Rs20,489cr and deposits growing by 29.2% yoy and 10.1% qoq to Rs29,721cr.

2.    NII grew by a robust 181.0% yoy to Rs222cr. However on a sequential basis, NII growth was moderate at 8.2% due to stable calculated NIMs of 2.9% qoq. Non-interest income growth was strong at 37.9% yoy (21.7% qoq).

3.    Operating expenses increased by 81.2% yoy driven by a 129.2% yoy jump in employee expenses. During FY2011, the bank made provision for enhancement in gratuity limits of Rs4.3cr (1/5^th of total liability of Rs21.4cr). It also took a hit of Rs27.1cr towards additional liability for serving employees under the second pension option and Rs25.1cr towards liability for retired employees. Balance liability carried forward for gratuity stands at Rs17.1cr and for Pension at Rs108.1cr. As a result of faster growth in operating income compared to operating expenses yoy, the cost-to-income ratio of the bank decreased to 45.7% from 58.0% in 4QFY2010.

4.    The asset quality of the bank improved during 4QFY2011 with the absolute Gross and Net NPAs decreasing by 9.2% and 19.3% qoq, respectively. Gross and Net NPA ratios declined sequentially to 1.1% and 0.3%, respectively. The provision coverage ratio stood at 73.9% (70.7% in 3QFY2011) excluding technical write-offs. Provisioning expenses were lower sequentially by 11.5% to Rs26cr.

5.    The bank’s CAR stood at 14.0% as on 4QFY2011.

Exhibit 1: 4QFY2011 Actual vs. Estimates
(Rs cr)	Actual	Estimates	Var (%)
Net interest income	222	205	7.9
Non-interest income	60	47	28.7
Operating income	282	252	11.8
Operating expenses	129	118	9.3
Pre-prov. profit	153	134	14.0
Provisions & contingencies	26	22	20.8
PBT	127	113	12.6
Prov. for taxes	45	35	27.4
PAT	82	77	5.9

  Source: Company, Angel Research

Exhibit 2: 4QFY2011 Performance summary

(Rs cr)	4QFY2011	3QFY2011	% chg (qoq)	4QFY2010	% chg  (yoy)
Interest earned	704	623	13.0	514	37.0
Interest expenses	482	418	15.4	435	10.8
Net interest income	222	205	8.2	79	181.0
Non-interest income	60	50	21.7	44	37.9
Operating income	282	254	10.9	123	129.9
Operating expenses	129	112	15.5	71	81.2
Pre-prov. profit	153	143	7.2	52	196.9
Provisions & contingencies	26	30	(11.5)	(3)	(957.5)
PBT	127	113	12.2	55	131.9
Prov. for taxes	45	38	19.5	16	180.3
PAT	82	75	8.5	39	111.7
EPS (Rs)	0.7	0.7	8.5	0.3	111.7
Cost-to-income ratio (%)	45.7	43.9		58.0
Effective tax rate (%)	35.5	33.3		29.4
Net NPA (%)	0.3	0.4		0.4

Source: Company, Angel Research

Exhibit 3: Trends in NPAs

Particulars	4QFY11	3QFY11	2QFY11	1QFY11	4QFY10	3QFY10	2QFY10	1QFY10
Gross NPAs (Rs cr)	230	254	228	223	211	214	213	231
Net NPAs (Rs cr)	60	74	67	65	62	57	56	83
Gross NPAs (%)	1.1	1.3	1.3	1.3	1.3	1.5	1.6	1.9
Net NPAs (%)	0.3	0.4	0.4	0.4	0.4	0.4	0.4	0.7
NPA coverage (%)	73.9	70.7	70.5	71.0	70.8	73.5	73.5	63.9

Source: Company, Angel Research ; Note: NPA coverage excluding technical write-offs