ICICI Securities remains positive on South Indian Bank, which has delivered multibagger returns to investors in the last three quarters. The brokerage said that the revamped business model of the private lender is yielding positive results and believes an improving profitability trajectory to continue.
South Indian Bank reimagined its business model and adopted 6Cs strategy which focuses on CASA, cost ratios, customer focus, capital, compliance and competency building. The lender has gone under the overhaul post the onboarding of new MD, Murali Ramakrishnan, in September 2020, said ICICI Securities.
“In order to ensure the successful implementation of the above stated strategy, it initiated a series of corrective measures including reducing exposure to BBB and below rated corporates, revamping HR policies to bring in an ownership approach, focus on profitable growth over volume growth and restructuring asset and liability operations,” it added.
Shares of South Indian Bank have delivered more than 155 per cent return from its 52-week low at Rs 7.27 on June 20, 2022. The stock tested its 52-week high at Rs 21.80 on December 15, 2022, before witnessing some correction.
In the last one-year, South Indian Bank has rallied over 135 per cent, whereas its return in the last six months has been about 115 per cent. The stock is down about 5 per cent in the year 2023 so, compared to its previous close at Rs 18.51 on Wednesday.
It also realigned organizational structure by setting up a separate operations team for asset and liability, segregating underwriting and business functions, strengthening capabilities in digital, risk management and analytics with a focus on mitigating frauds and improving collections, said the brokerage firm.
South Indian Bank is a major private sector bank headquartered at Thrissur in Kerala, which has 933 branches, four service branches, and 18 Regional Offices spread across India. The bank has also set up more than 1,200 ATMs and 120 Cash Deposit Machines.
Successful execution of renewed business strategy reflects in the share of BBB and below rated corporates falling to about 5 per cent in December 2022 from 34 per cent in October 2020; PCR improving to 60 per cent by December 2022 from 48 per cent in September 2020; GNPL in the new book; CASA ratio increasing to 34 per cent by December 2022 from 28 per cent in September 2020 and NIM expanding to 3.5 per cent in December 2022 from 2.6 per cent in September 2020, said ICICI Securities.
“We believe SIB is on the right path to build a sustainable, scalable and profitable model under the leadership of Murali Ramakrishnan,” said the brokerage firm with a buy rating and a target price of Rs 25 on the stock, suggesting an upside of 40 per cent from its previous close.
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