Broker's call: City Union Bank (Buy)

| Updated on February 19, 2021 Published on February 20, 2021

Chola Securities

City Union Bank (Buy)

Target: ₹197

CMP: ₹164.55

In Q3-FY21, City Union Bank’s advances growth picked up by 7.9 per cent y-o-y (up 3 per cent q-o-q) to ₹36,500 crore. The growth was primarily driven by Emergency Credit Line Guarantee Scheme (ECLGS) accounts (disbursed ₹2,070 crore as on Q3-FY21) and gold loan disbursements.

During the quarter MSME (34.9 per cent of book) increased by 14.1 per cent/3.5 per cent y-o-y/q-o-q while Agriculture (11.3 per cent of book) declined by 9.8 per cent y-o-y/ up 2.8 per cent q-o-q.

The Management is cautiously optimistic and guides credit growth for FY21E to be in high single-digit driven by ECLGS accounts and gold loans while expects FY22E to reach mid teen growth. The Bank’s prudent lending and higher provisioning together provide assurance on asset quality while credit growth and stable cost of funds are expected to support NIMs in the coming quarters. Management’s astute focus on improving CD ratio should be margin accretive. The stock is currently trading at 1.9x P/ABV of FY23 estimates. We upgrade our rating to Buy(Earlier: Outperformer) on the stock, assigning a target price of ₹197.

Key risks: Decline in asset quality led by higher slippages from stressed sectors; Systemic slowdown in credit growth.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on February 20, 2021
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.