Shareholders of South Indian Bank were ecstatic with its remarkable performance over the past six months as the stock witnessed a surge from ₹8.60 apiece to the current trading price of ₹18.80, resulting in a substantial return of 118.60%.

Notably, after hitting a 52-week low of ₹7.2 in June last year, the stock has demonstrated a consistent upward trend, and by December

it had surged by an impressive 202% to reach ₹21.80. As of now, the stock is trading 161% higher than its 52-week low.

Brokerage firm ICICI Securities believes the stock has the potential to go even higher. The brokerage stated that after the onboarding of a new managing director in September 2020

the bank is delivering in line with its Vision 2025 program.

The bank is focusing on growing its balance sheet in a calibrated manner, with an emphasis on net interest margins (NIMs) and asset quality, it added.

Considering the legacy of higher stress in the bank's corporate and mid-corporate segments, the new management revisited the business strategy and put emphasis on ‘quality over quantity'

Further, it completely revamped the sourcing and underwriting process with a clear focus on margins and asset quality. GNPLs were at only 0.06%, with SMA-2 at 0.2% as of December 2022, the brokerage highlighted.

The financial performance of the bank in Q3FY23 was affected by a one-time provision of ₹3.1 billion made towards security receipts (SRs).

If we exclude this provision, the profit after tax (PAT) stands at ₹3 billion, which is higher than the reported figure of ₹1 billion, says ICICI Securities.

Key performance indicators such as NIM expanded by 30 bps QoQ to 3.52% in Q3FY23, the slippage ratio fell to 1.9% from 2.25% in Q2FY23, credit cost sustained at 1% for the past 4 quarters, and overall loan growth was at 13% in FY23 to date, it added. 

The major contribution to loan growth has been from the corporate sector, with over 60% of disbursements going towards large corporations in the last quarter.

However, the majority of lending towards corporations has been for those with AAA/AA/A ratings, as shown by increase in their share from 75% in September 2021 to 95% in December 2022, the brokerage noted. 

With an improving credit outlook, the management estimates double-digit credit growth in FY23, with a focus on scaling up the retail segment.

The PCR has improved and is now at 60%, and the slippage ratio has decreased to 2% in Q3FY23 as compared to 2.9% in Q1FY23, suggesting that credit costs are likely to sustain at current levels.

Overall, the brokerage has projected that RoA will reach 0.80% in the fiscal year 2024.

The brokerage retained its "buy' call on the stock and raised the target price to ₹25 apiece from ₹14 earlier, indicating an upside of over 33% from the stock's last trading price.

ICICI Securities has increased its earnings estimates for FY23E and FY24E by 12% and 24%, respectively, on the back of higher NIMs and lower credit cost assumptions.