Edelweiss Securities has maintained 'Buy' on South Indian Bank with target price of Rs 40 as against current market price (CMP) of Rs 30 in its report.

Commenting on the investment rationale, the stock broker said, ''The South Indian Bank (SIB) management, during our recent interaction, exuded confidence on growth prospects largely deriving strength from strategic restructuring exercise driving retail growth and mproving outlook on macros aiding SME growth. Incrementally, growth is guided to touch 20% plus in favour of retail and SME, taking their proportion from 50% to 60%.

This, coupled with stable NIMs and contained cost, augurs well for operating performance. Having addressed asset quality hiccups, management is now confident of maintaining it at benign levels (GNPLs/NNPLs at sub 1.2%/1% going forward) with no major stress and realigned focus on recoveries (under separate leadership). Despite recent run up in the financial space, SIB has underperformed (15% relative to Sensex for past one year).

However, with improving visibility on asset quality and growth, we expect the stock to outperform the Sensex, and given bank's potential to generate healthy return ratios - RoA/RoE of 1.1%/19% by FY16 - we assign multiple of 1.3x FY16E ABV leading to TP of Rs 40 (Rs 30 earlier). Maintain 'Buy'.''

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