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On a day when almost all the banking stocks made gains, lifting S&P BSE Bankex and Nifty Bank by 0.6 per cent and 0.67 per cent respectively, the stock of private lender City Union Bank crashed almost 10 per cent due to muted Q4-FY23 numbers that fell short of analyst expectations.
The stock closed at ₹125.70 at the BSE, only marginally higher than its 52-week low of ₹120.45 recorded on March 29. However, analysts are divided post Q4 show.
Downgrades
Prabhudas Lilladher downgraded the stock from Buy to Accumulate, while also revising its target price to ₹160 (earlier ₹190).
The brokerage also trimmed NIM by 18 bps to 3.5 per cent and reduced multiple from 1.8x to 1.4x due to growth/pricing pressures from higher competition.
It pointed out that while yields for private banks increased by 100 bps yoy in FY23, reported yields for CUB declined by 13 bps yoy owing to competitive intensity and higher slippages.
ICICI Securities, too, downgraded the stock from Add to Hold with the stock’s outlook for FY24 appearing “soft” with guidance of back-ended credit growth and continued pressure on NIM.
“We thereby assign a target multiple of ~1.1x FY25E ABV, which is lower than the potential RoA, due to likely moderation in loan growth / NIM and relatively higher levels of stress (net-NPA plus restructured loans) vs peers,” it added.
Headwinds
With headwinds on margins and treasury income visible along with the C-I Ratio expected to remain higher at 40-42 per cent, moderation in credit costs backed by lower slippages and healthy recoveries is the only visible driver to support RoA improvement, said Axis Securities.
“We expect RoA of about 1.35-1.4 per cent vs. the management guidance of 1.5 per cent. Factoring in slower growth and margin pressures, we lower our NII/PAT estimates by 9-11 per cent/13- 15 per cent over FY24-25,” it added, assigning a ‘Buy’ to the stock.
HDFC Securities said that the management conservatively recognised impairment to the tune of about ₹80 crore (annualised slippages at an elevated 3.8 per cent), offset by better recovery/write-off, driving GNPA lower to 4.4 per cent.
“The management has further revised its loan growth guidance downward to 12-15 per cent on the back of moderate growth prospects in the existing portfolio and no visible signs of improvement in the MSME investment cycle,” it said, pointing out that the management’s guidance for steady return ratios on the back of accelerated recoveries in NPAs and written-off accounts would help offset the elevated funding costs from lagged re-pricing of deposits, while maintaining its ‘Buy’ rating.
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