Betting on South Indian Bank

The Risk Reward Ratio seems very favorable in South Indian Bank

Pre Covid, The Bank used to trade at .8x to 1x Book Value. As of now, it is being traded at .5x Book.

Here is what I am betting on:

  • NPA getting reduced. Some accounts which went into NPA during covid are bound to get out of NPA and start performing
  • Earnings grow at a moderate 10-12 percent per annum.
  • Loan Book growth with more stringent underwriting.

The above three can result in a potential rerating of the company.

Rerating Plus Moderate Earnings growth can give a very good return of a 3-year period.

I am betting on 1.8x in 3 years’ time.

The purchase price is 13.6 INR

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