Comments
LKP Securities
City Union Bank (Buy)
Target: ₹205
CMP: ₹150.9
City Union Bank (CUB) has demonstrated consistency in profitability by focusing on risk at a time when most of its peers were looking for scale. Over the last ten decades, CUB leveraged its trust and relationship with SME in its circle of competence by ring fencing the risk. In our view CUB is moving ahead cautiously with lower stress formation. 1QFY22 results were better than our estimates on operational fronts, largely due to healthy non-interest income and lower credit cost v/s our estimate.
Growth in NII stood at 2.4 per cent y-o-y as NIM declined by 12 bps y-o-y but the weakness in NII was offset by nearly 22 per cent y-o-y growth in non-interest income.
We expect the bank’s loan book to grow cautiously at CAGR of about 9 per cent over FY21-23, led by MSME and retail book growth.
As on Q1-FY22, the bank’s CRAR stood at 19.6 per cent with core equity capital of 18.5 per cent of RWA. We believe the capital buffer to be adequate to maintain the growth momentum and expect no equity dilution soon. The capital drag down by NPAs from restructuring will be key monitorable. In our opinion, the bank’s credit cost will normalise by FY22E and estimate return ratio ROA/ROE of 1.3 per cent and 11.5 per cent in FY23.
We value CUB at 2.7xF Y23E Adj. BVPS (₹76) and arrive at a target price of ₹205.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.