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Buy CSB Bank Ltd For Target Rs.432

Mixed numbers; easing restriction and rising demand will aid growth

CSB Bank reported a mixed set of numbers wherein net interest income was down by 2.9% QoQ and total income was down by 11.3% QoQ due to lower other income. However, its pre-provisioning profit was up 39% due to lower employee and depreciation cost. PAT grew by 42.2% QoQ to Rs 61cr. We believe with unlocking and improving economic conditions, the CSB bank business would witness growth for the long term. Maintain Buy.

Result Update Q1FY22

* Net interest income for CSB bank came in at Rs 267.8cr, down by 2.9% QoQ, largely due to sluggish business impacted by Covid led lockdown. Total income came in at Rs 344cr, down by 11.3% QoQ on account of lower non-interest income (down 32% QoQ). Further, due to lockdown conditions, ground-level activity was less and the bank operated at lower capacity thus employee cost declined by 45.6% QoQ to Rs 97.2cr.

* The bank made higher provisions of 38.5% as compared to last quarter. On the asset quality front, due to stress in the gold loan portfolio, GNPA and NNPA came in higher at 4.9% and 3.2% respectively. Also on the business growth front, bank’s advances and deposits reported a decline of 4.3% and 2.5% QoQ.

* Key Highlights: 1) Gold loan collection efficiency is continuously improving. 2) The bank has plans to open 50 branches in next quarter. 3) Assets quality deteriorated as GNPA and NNPA increased by 220bps and 204bps.

Outlook & Valuation

We believe CSB bank is well placed as it has a strong retail portfolio with a gold loan book and a prudent management team. Going forward, its focus would be on expanding digital presence, betting on less risky businesses and growing gold loan business. We believe with easing restriction, demand for loans in SME, MSME and 2-wheelers segments will get back on track. From a long term perspective, we are optimistic on the bank’s growth prospects and thus maintain a buy on the stock with a target price of Rs 432.

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