South Indian Bank zooms 18% to hit record high; where is the stock headed?

Shares of South Indian Bank Ltd climbed 18 per cent in Monday's trade to hit record high levels, thanks to a higher-than-expected profit in the September quarter on a sharp moderation in credit costs. The bank has sustained 1 per cent return on asset (RoA) led by benign credit costs but the net interest margin (NIM) dip was steep, ICICI Securities said as it highlighted a pick up in the MSME segment growth.

The brokerage suggested a 'Buy' on South Indian Bank with a target of Rs 42 per share. On Monday, the scrip was trading 17.57 per cent higher at Rs 38.40 apiece on BSE. This was the highest ever level hit by the lender.

South Indian Bank sustained 1 per cent RoA for the ninth consecutive quarter. Overall growth was reasonable, though MSME,  key focus segment, – saw growth revival at 6 per cent sequentially. The bank reiterated its aspirations of 20 per cent growth in MSME/retail going ahead. NIM declined 23 basis points QoQ to 2.8 per cent. The decline is a bit steeper for SIB vis-a-vis peers, possibly due to higher share of corporate book, lower share of bulk and faster rate transmission. 

South Indian Bank said SIB stated NIM has bottomed out, assuming no further rate cuts. 

"Asset quality remains strong with new book (83 per cent of total) sustaining

Opex growth remained muted at 2 per cent YoY, as the bank has been rationalising branches and headcount. CET 1 declined QoQ in absolute terms due to investment fluctuation reserves and AFS reserves. 

"Slippages remained muted at 0.9 per cent. NNPA ratio improved to 56 bps with PCR rising to 81 per cent. Performance of new book (83 per cent of the total) remains strong with slippages and GNPAs at