Suryoday SFB's beat on operating expenses was encouraging, especially in light of strong sequential growth in the loan and deposit book. However, slippages were higher than anticipated, and the management has guided for a recovery trajectory skewed towards the second half of the fiscal year.
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Suryoday Small Finance Bank Ltd. has delivered a resilient set of numbers despite a challenging macro backdrop. While net interest margin compression was visible—mirroring trends across the sector—it remained within our expectations.
Notably, the beat on operating expenses was encouraging, especially in light of strong sequential growth in the loan and deposit book. However, slippages were higher than anticipated, and the management has guided for a recovery trajectory skewed towards the second half of the fiscal year.
Accordingly, we have revised our provisioning estimates upwards. That said, stress in asset quality has been a sectorwide phenomenon, and commentary from peers remains constructive on improving credit metrics going forward.
We view Suryoday as a compelling investment proposition on multiple fronts-
Attractive Valuation: Assigning a just 0.8x our FY28E adjusted book value, the stock offers a significant upside potential. With RoE expected to improve to 13% by FY27, we see an attractive ~35% upside from current levels;
CGFMU Cover: The reported PCR of 35% appears optically low due to timing differences of CGFMU claim.
We expect this to normalize as Suryoday starts receiving CGFMU claim recoveries (notably, a ~Rs 2.5 billion inflow anticipated in H2FY26), which implies that the actual uncovered NPAs are minimal. Rolling forward our estimates to H1 FY28E, we revise our target price to Rs 178 and maintain a Buy rating.
We believe the stock is well-positioned for a valuation multiple re-rating as operational performance continues to strengthen
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