Broker's call: City Union Bank (Buy)

CMP: ₹218.7

Target: ₹240

City Union Bank Ltd is a banking company. The Bank’s segments include treasury, corporate and wholesale Banking, retail banking and other banking operations. It offers personal banking, corporate banking and non-resident Indian banking services. Its online banking services include utility bill payments, mobile banking, online shopping, book railway ticket and verified by Visa. It offers CUB mobile banking — mBank Plus, mobile passbook (mPassbook), immediate payment service (IMPS) in Internet banking for funds transfer across the banks and digital signature authentication for corporate as second factor authentication for Internet banking.

Recent financial performance Q1-FY20: a) Bank’s Deposits increased by 16 per cent from ₹33,600 crore to ₹39,100 crore y-o-y. b) Advances registered a growth of 14 per cent to ₹32,200 crore from ₹28,200 crore y-o-y basis. c) Bank’s total business grew by 15 per cent to ₹71,300 crore from ₹61,800 crore y-o-y. d) Gross Profit increased by 17 per cent to ₹351.4 crore from ₹2,994. crore e) Net Profit registered a growth of 15 per cent ₹185.6 crore from ₹161.6 crore.

Valuation: City Union Bank has better performance than other mid-sized banks. We see conservative approach in management and avoiding aggressive loan growths. Management has a strict granular asset profiling that has resulted in very low strained assets and a well diversified loan book. It has achieved business growth of over 20 per cent CAGR in last 10 years. Stock is currently trading at about 2.9x of FY20 ABV and 18x FY20 earnings. We recommend buying Stock for target price of ₹240 valuing stock at 19x of FY21 earnings.

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