Stock below Rs 20: This small-cap private bank stock zooms over 40 per cent; keep it on your radar!

The stock has jumped more than 40 per cent from the lows of October 17 and with this strong move, it recorded its fresh 52-week high.   

Samvat 2078, which began on November 04, 2021, was a volatile one with a host of events acting as hurdles for the bulls like Russia’s invasion of Ukraine, US Dollar scaling to a two-decade high, political instability in the United Kingdom, and China’s COVID-zero policy.   

Amidst all this chaos, the Indian benchmark indices relatively outperformed the global peers while in India, one of the best-performing sectors was banking and financials.   

So, what’s worked in favour of banking and financial stocks? After almost a decade, India’s financial sector appears to be out of turmoil. Almost all the major banks have overcome their solvency concerns and are on their way to growth. Asset quality is improving steadily in most banks despite the disruption caused by the pandemic. Credit growth has improved from its historically low levels in recent years. Earnings growth is strongly supported by a healthy recovery from bad debt. In addition, most tier 1 and tier 2 bank lending books are stress-tested and well-prepared to withstand most foreseeable adversities.   

One of the Small-Cap private banks, which has caught investors’ eye in the last couple of weeks or so is South Indian Bank. The stock has jumped more than 40 per cent from the lows of October 17 and with this strong move, it recorded its fresh 52-week high.   

Recently, the bank came out with quarterly numbers. The bank reported a net profit of Rs 223.10 crore during Q2FY23 against a loss of Rs 187.06 crore during the corresponding period of the previous year. PBT of Rs 246.43 crore and net interest income of Rs 726.37 crore were the highest ever in a quarter. This solid performance backed with a NIM (net interest margin) of 3.21 per cent had enabled the improvement in RoE by 1,707 bps while RoA has shown a staggering growth from -0.36 per cent to 0.64 per cent on a YoY basis.   

During Q2FY23, the bank logged the highest-ever quarterly net interest income and PBT due to an overall improvement in CASA, net interest income, and reduced provisions (excluding tax). Further, the bank was able to beef up the capital-to-risk-weighted asset ratio (CRAR) to a level of 16.04 per cent from 15.74 per cent on a YoY basis.   

Asset quality of private bank lenders improved as gross non-performing assets (NPAs) declined to 5.67 per cent of gross advances as of September-end from 6.65 per cent by the end of September 2021. Net NPAs (bad loans) were down to 2.51 per cent from 3.85 per cent.    

During the quarter, the rating outlook for the bank was revised by CARE and Indian Rating from ‘negative’ to ‘stable’. Interestingly, the stock is trading at price to book value of 0.42.

Do you think this small-cap double-digit bank can touch the three-digit mark in the coming days? Let us know in the comments section!