Tamilnad Mercantile Bank delivers 10.35% FY25 profit growth; Stock undervalued despite strong financials

How Did Tamilnad Mercantile Bank Perform in FY25?

Tamilnad Mercantile Bank Limited (TMB), a century-old private sector lender headquartered in Thoothukudi, reported a 10.35% increase in net profit year-on-year for FY25, reaching ₹1,183 crore. The board-approved results, announced on April 23, 2025, demonstrate TMB’s sustained profitability through solid core lending, expanding deposits, and disciplined risk management.

With a history spanning over 103 years, TMB’s business momentum continues across its vast network of 578 branches and 12 regional offices in 17 states and 4 Union Territories. The FY25 performance builds upon this legacy while introducing critical innovations in customer service and digital infrastructure.

What Were the Financial Highlights Driving FY25 Growth?

TMB’s total business rose to ₹98,055 crore from ₹89,485 crore, showing a 9.58% growth. Deposits increased by 8.43% year-on-year to ₹53,689 crore, while advances rose 11% to ₹44,366 crore. Within the advances book, the RAM (Retail, Agriculture, MSME) segment grew by 13.19%, now accounting for 93% of total loans—up from 91% last year.

The bank’s operating profit advanced to ₹1,746 crore, up 17.81% from ₹1,482 crore. Interest income stood at ₹5,291 crore, a rise of 9.14%, while total income climbed 11.82% to ₹6,142 crore. Non-interest income also surged, growing 31.94% to ₹851 crore. Net Interest Income improved 6.97% to ₹2,301 crore.

TMB’s earnings per share (EPS) rose from ₹67.70 to ₹74.68, up 10.31%, and book value per share improved from ₹500 to ₹569, a growth of 13.80%. The bank’s net worth grew to ₹9,009 crore from ₹7,921 crore, reflecting a healthy 13.74% increase.

How Is Tamilnad Mercantile Bank Managing Asset Quality?

TMB reported significant improvements in asset quality during FY25. Gross NPA declined to 1.25% from 1.44%, while Net NPA sharply decreased to 0.36% from 0.85%. The stressed asset ratio improved to 2.01% from 2.70%, and Special Mention Accounts (SMA) as a percentage of gross advances dropped to 2.55% from 3.97%.

Capital adequacy remained robust with a CRAR of 32.71%, up 334 basis points from 29.37% the previous year. Return on Assets (ROA) improved slightly to 1.88%, while Return on Equity (ROE) moderated to 13.97% from 14.44%, reflecting higher capitalisation and strategic investments.

What New Initiatives and Digital Upgrades Were Introduced?

TMB aggressively pushed digital and customer-centric upgrades in FY25. The Transaction Banking Group (TBG) was formed to enhance the current account franchise by focusing on institutional and digital customers. Meanwhile, the Global NRI Centre (GNC) aims to boost CASA deposits from the NRI segment through tailored service delivery and relationship management.

The Elite Service Group (ESG) was introduced to deepen relationships with High Net Worth Individuals by increasing product penetration and offering dedicated problem resolution channels. Additionally, the bank commenced development of a new internet banking platform powered by Edgeverve (a subsidiary of Infosys), under the Digital Banking Revamp (DBR) initiative.

What’s the Dividend Payout and Shareholder Impact?

The board recommended a final dividend of ₹11 per equity share, representing a 110% payout on the face value of ₹10. This move aligns with TMB’s history of consistent shareholder returns while ensuring capital is available for reinvestment and digital transformation.

The rising book value, improving earnings, and sustained dividends affirm the bank’s commitment to rewarding shareholders while maintaining financial flexibility.

How Is the Market Responding to TMB’s Performance?

As of April 24, 2025, Tamilnad Mercantile Bank’s stock trades at ₹449.90 on the NSE, rebounding from a recent low of ₹403.35 but still off its 52-week high of ₹509.95. Despite solid financials, the year-to-date decline of 10.6% suggests investor scepticism, likely tied to concerns over legacy banking structures and broader market volatility.

Technical indicators show a neutral-to-mildly bearish trend. The Relative Strength Index (RSI) reflects balanced sentiment, while trading volume remains stable without sharp surges in institutional inflows.

What Do the Valuation Metrics Suggest?

TMB’s current Price-to-Earnings (P/E) ratio stands at 6.11, below the sector average of 8.58. This discount reflects market caution but also points to potential undervaluation. With a dividend yield around 2.27%, the stock offers a viable return proposition for long-term investors prioritising stable income and capital preservation.

What Are Institutional Investors Doing?

Foreign Institutional Investors (FIIs) slightly increased their holdings from 4.12% to 4.22% during the March 2025 quarter, while Domestic Institutional Investors (DIIs) maintained their position at 2.66%. Mutual fund interest remains muted, indicating a wait-and-watch approach from large institutions despite the bank’s consistent performance and strong balance sheet.

This tepid institutional activity suggests that TMB’s transformation narrative is yet to fully convince market participants, particularly in comparison to high-growth private sector peers aggressively scaling digital and fintech integrations.

Should Investors Buy, Hold, or Sell Tamilnad Mercantile Bank Shares?

With its conservative balance sheet, improving NPAs, and ambitious digital overhaul, Tamilnad Mercantile Bank presents an interesting value play in India‘s private banking segment. While ROE has dipped marginally, profitability remains intact and capital buffers are among the highest in the industry.

The stock may be suitable for investors with a medium- to long-term horizon who seek exposure to legacy banks undergoing transformation. Analysts may classify the scrip as a ‘Hold’ or selective ‘Buy’ for value-oriented portfolios, pending further confirmation of digital growth execution and broader market re-rating.