Bank Share – Buy at Rs 27 and sell at Rs 34 – Best Bank Share After Budget 2024

Bank Share

Union Minister Nirmala Sitharaman presented the budget on July 23, 2024, an event closely watched by investors and market analysts. Despite the high expectations, the stock market did not react positively to the budget, with stock indices ending in the red on both post-Budget days. However, market experts believe that this dip is temporary and the stock market will soon recover. Amidst this backdrop, ICICI Securities has recommended buying shares of South Indian Bank, suggesting a buy call on the stock with a target price of Rs 34. This essay will delve into the details of this recommendation, examining the current valuation, performance, and potential growth of South Indian Bank shares.

South Indian Bank Share Price and Performance

As of the latest data, South Indian Bank shares are priced at Rs 26.79 on the National Stock Exchange (NSE). The stock has faced a decline of 4.32 percent over the last five days, and a 1.72 percent decrease over the past month. Despite these short-term declines, the stock has seen a gain of 8.64 percent so far in 2024. Over the last year, South Indian Bank share has performed impressively, achieving a 44.73 percent increase. The stock’s 52-week high is Rs 36.89, while the 52-week low is Rs 17.92.

Brokerage Assessment

ICICI Securities has placed a buy call on South Indian Bank shares, driven by several factors. The brokerage report highlights that South Indian Bank reported softer business growth and higher credit costs. However, it notes that a favorable loan mix for commercial and retail segments will support overall growth at 12 percent in FY25. Consequently, ICICI Securities recommends buying the stock with a target price of Rs 34, indicating a significant potential upside from the current price.

Right Share Issuance

Earlier this year, South Indian Bank announced a rights issue in the ratio of 1:4, with February 27 set as the record date for the sale of rights shares. This means that for every four shares held, shareholders were entitled to purchase one additional share. This move was aimed at raising additional capital for the bank, which could be used to bolster its operations and growth plans.

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Company Background

South Indian Bank is a private sector bank headquartered in Thrissur, Kerala. Established in 1929, the bank has grown significantly over the years and now operates 850 branches and 1200 ATMs across India. According to NSE Analytics, South Indian Bank has a market capitalization of Rs 7,063 crore. The stock has a face value of Rs 1.

Financial Performance

South Indian Bank has shown notable improvement in its financial performance. For the June quarter of 2024, the bank reported a net profit of Rs 294 crore, compared to Rs 202 crore in the same period last year, marking a 45.30 percent increase. The bank’s net interest income (NII), which represents the difference between interest earned on loans and interest paid to investors, rose to Rs 866 crore from Rs 808 crore in the same quarter last year. Additionally, operating profit increased to Rs 507.68 crore from Rs 490.24 crore in the previous year. Retail investment saw a significant rise, with an increase of Rs 7,702 crore to Rs 99,745 crore. The return on equity improved by 110 basis points, indicating better profitability and efficient use of shareholders’ equity.

Detailed Analysis of Features and Prospects

Liquidity and Earnings

The ICICI Bank Flexi Fixed Deposit (FD) is a unique product that combines the liquidity of a Current Account with the higher earnings of a Fixed Deposit. This product is designed to cater to the needs of ICICI Bank’s Current Account holders by linking their fixed deposits with their current accounts. This ensures that customers can enjoy the benefits of a fixed deposit while maintaining easy access to their funds when needed.

Minimum Balance Requirement

To generate a linked FD request, the minimum balance required in the Current Account should be Rs 1,05,000. This ensures that only those with a substantial balance in their Current Account can benefit from the Flexi FD feature.

Common Customer ID

The Customer ID for both the Current Account and the linked FD will remain the same. This simplifies account management and ensures a seamless integration of the Current Account and Fixed Deposit.

Auto Renewal Mode

Fixed deposits under this scheme are opened in auto-renewal mode. This means that upon maturity, the deposit will automatically renew for the same tenure, ensuring continuous earnings without the need for manual intervention.

Original Tenure Renewal

The deposit will be renewed for the original tenure only. This feature provides clarity and consistency in the renewal process, ensuring that the depositor is aware of the exact terms of the renewed deposit.

Automatic Reverse Sweep Facility

One of the standout features of the ICICI Flexi Fixed Deposit is the automatic reverse sweep facility. If the balance in the Current Account falls below Rs 1 lakh for individual customers, the linked Fixed Deposits will be automatically broken to maintain the minimum balance. This ensures that funds are always available for urgent needs without having to manually break the fixed deposit.

Last-In, First-Out (LIFO) Basis

For the reverse sweep, Fixed Deposits will be broken on a Last-In, First-Out (LIFO) basis. This means that the most recently created deposit will be the first to be broken. This feature helps in minimizing the loss of interest since the latest deposit will have accrued less interest compared to older deposits.

Applicable Interest Rates

The interest rate on such Fixed Deposits will be the rate applicable for the respective period, as on the date of the auto renewal. This ensures that the depositor always earns interest at the prevailing rates, which can be beneficial in a rising interest rate scenario.

Detailed Analysis of South Indian Bank’s Financial Health

Net Profit and Interest Income

South Indian Bank has shown notable improvement in its financial performance. For the June quarter of 2024, the bank reported a net profit of Rs 294 crore, compared to Rs 202 crore in the same period last year, marking a 45.30 percent increase. The bank’s net interest income (NII), which represents the difference between interest earned on loans and interest paid to investors, rose to Rs 866 crore from Rs 808 crore in the same quarter last year.

Operating Profit

Operating profit increased to Rs 507.68 crore from Rs 490.24 crore in the previous year. This growth in operating profit indicates the bank’s ability to manage its operating expenses efficiently while increasing its revenue.

Retail Investment

Retail investment saw a significant rise, with an increase of Rs 7,702 crore to Rs 99,745 crore. This indicates a growing confidence among retail investors in the bank’s performance and future prospects.

Return on Equity

The return on equity improved by 110 basis points, indicating better profitability and efficient use of shareholders’ equity. This improvement in return on equity is a positive sign for investors, as it shows that the bank is generating higher returns on its equity base.

Conclusion

The South Indian Bank share presents a compelling investment opportunity, especially after the budget of 2024. Despite the initial negative reaction from the stock market, there is a widespread belief that the market will recover soon. ICICI Securities’ buy call on South Indian Bank shares with a target price of Rs 34 highlights the potential for significant returns. The bank’s improving financial performance, favorable loan mix, and robust growth prospects make it an attractive investment option.

Investors looking to balance liquidity and returns should consider the ICICI Flexi Fixed Deposit for their Current Account needs. This product offers the flexibility of a Current Account with the higher returns of a Fixed Deposit, making it a versatile and efficient financial tool.

Disclaimer : The information provided in this essay is for informational purposes only and should not be considered as financial advice or an endorsement of any specific investment or financial product.