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Centrum Broking
City Union Bank (Buy)
CMP: ₹126.2
Target: ₹154
City Unio Bank’s Q4 NII at ₹420 crore was slightly lower led by muted loan growth at +3.8 per cent y-o-y (our estimate: 9 per cent). NIM (calc.) at 3.85 per cent was a tad lower due to slippages. Higher other income at ₹180 crore (+22.1 per cent y-o-y) was led by treasury & forex of ₹79 crore. Opex was lower due to downward revision of actuarial employee benefit assumptions. PPOP (pre-provision operating profit) came in at ₹335 crore (-0.8 per cent y-o-y). Provisions were ₹450 crore (est. ₹1.2bn) of which Covid-19 related were ₹125 crore. GNPA/NNPA deteriorated q-o-q by 59 bps/34 bps to 4.1 per cent/2.3 per cent. Slippages for the quarter were at ₹480 crore (est. ₹210 crore). CUB reported a loss at ₹95.3 crore (vs. PAT est. of ₹1.45bn). On FY20 basis PAT at ₹480 crore (est. ₹720 crore).
Valuation and risks: For FY21E, we lower our NII/other income and raise provisions which might impact FY21/F22E PAT by 45 per cent/8.0 per cent. CUB has been a consistent performer though FY21E earnings could be dented due to stress in MSME. We like the management quality and valuation at 1.7x FY22ABV is also attractive.
Risks: Higher stress.
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