Geojit Financial Services has issued an "Accumulate" recommendation on South Indian Bank, setting a revised target price of Rs.27, up from its previous Rs.24. South Indian Bank has shown improvements in both asset quality and profitability metrics, aided by growth in personal and corporate loans and strategic technological advancements in loan processing. With a robust capital adequacy and improved loan-to-value (LTV) ratios, the bank’s loan growth and net interest margins (NIMs) indicate a steady medium-term trajectory for investors.

Investment Summary

Target Price: Rs.27
Current Market Price (CMP): Rs.24
Rating: Accumulate
Return Potential: +13% over the next 12 months

Q2 FY25 Financial Highlights

Interest Income: South Indian Bank reported an 11% year-on-year (YoY) growth in interest income, driven primarily by a 10.5% YoY increase in interest from loans, achieving a total of Rs. 2354.7 crore for Q2 FY25.
Loan Growth: Advances surged by 13% YoY, mainly due to a 22.2% and 22.9% YoY growth in the corporate and personal loan segments, respectively.
Profitability: The bank’s profit after tax (PAT) grew by 18.2% YoY, supported by stronger fee income growth and reduced provisions.

Asset Quality and Provision Coverage

The asset quality of South Indian Bank has shown noticeable improvement:

Gross Non-Performing Assets (GNPA): Decreased to 4.4%.
Net Non-Performing Assets (NNPA): Reduced to 1.3%.
Provision Coverage Ratio (PCR): Increased to 80.7% compared to 77.8% in Q2FY24.
These improvements demonstrate South Indian Bank's focused approach to managing its asset quality, providing a more secure investment profile.

Operational Enhancements and Technology Integration

South Indian Bank has introduced two significant systems:

PowerDrive: This system enhances the efficiency of auto loan processing.
LAP Power: Focuses on mortgage loan application processing.
These digital advancements are expected to increase loan processing speed and customer satisfaction, ultimately boosting the bank’s operational efficiency.

Outlook and Future Prospects

Expected Credit Growth: With a 12% projected credit growth for FY25-FY26, South Indian Bank is on a steady upward trajectory.
Return on Equity (ROE): Expected to reach approximately 13% by FY26, reflecting a well-capitalized balance sheet and profitability.

As the bank continues to focus on quality lending and increasing its Current Account and Savings Account (CASA) ratio, Geojit remains optimistic about the bank's long-term growth potential.

Valuation and Stock Target

Geojit Financial Services has set a target price of Rs.27 for South Indian Bank, representing a valuation of 0.63x FY26 estimated book value per share (BVPS). This target reflects a 13% upside from the current market price of Rs.24.

Conclusion: Accumulate for Medium-Term Gains

In conclusion, Geojit Financial Services suggests an "Accumulate" position on South Indian Bank. Given its improving asset quality, steady profitability, and the strategic management of its loan portfolio, the stock provides a promising 13% return potential over the next year.