CSB Bank (CSB) is one of the oldest private sector banks in India with a history of over 98 years and a strong base in Kerala along with a significant presence in Tamil Nadu and Karnataka. The bank is promoted by FIH Mauritius Investments Ltd (FIHM). FIHM is a wholly-owned subsidiary of Fairfax India Holdings Corporation.
The bank offers a wide range of products and services to its customer base of 13 lakh (as on FY19) aided by 412 branches, with focus on SME, retail and NRI customers. As of September 30, 2019, CSB has advances of | 11298 crore. Geographically, the company has ~83% exposure towards three states viz. Kerala, Tamil Nadu and Karnataka. CSB has 412 branches across 16 states and four union territory with employee base of 3001 as of FY19. The bank has healthy CASA deposits of ~| 4372 crore with CASA ratio of 28.2% as of September 30, 2019.
Retail, SME to remain key growth drivers
CSB aims to fuel its future lending growth by leveraging its expertise in retail, gold & SME. Among retail, the bank has a predominant focus on gold loans with its contribution in total loans on the rise over the years. As of Q2FY20, gold loan was at | 3782 crore, growing at 28% CAGR in FY17-H1FY20 and contributing 33.5% of total advances. Further, the bank plans to foray ahead using multiple channel like business correspondence, direct selling agents and increasing branch presence to scale up its gold loan business. Apart from retail loans, CSB focuses on meeting funding and banking requirements of SME customers. Accordingly, SME constitutes 29.5% of advances at | 3361 crore as of September 2019. CSB has ~7600 SME accounts with average ticket size of | 46 lakh.
Experienced management with strong independent board
CSB's KMP & board have strong reputation within the industry and wideranging experience in the BFSI industry, which is seen helping the bank.
Key risk and concerns
* Geographical concentration acts as a risk
* Increase in NPA could impact earnings
* Volatility in gold prices could impact financials
Priced at P/BV of 2.2x H1FY20 on upper band
CSB’s performance has not been encouraging in the past with rise in NPA level. However, new promoter and strong management brings capital and execution strength on the table which bodes well for future growth as well as earnings. Therefore, we assign a SUBSCRIBE recommendation to the stock. Further, at the IPO price band of | 193-195, the stock is available at a P/BV of ~2.2x at the upper band on H1FY20 basis.
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