Buy City Union Bank Ltd For Target Rs.215- icici direct
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Healthy quarter; growth guidance revised upwards…
About the stock: City Union Bank is an old private sector bank with focus on MSME and agri loans that form 61% of overall advances.
* Strong presence in south India with 644 out of total 727 branches
* Total 99% of bank’s advances are secured in nature
Q1FY23 Results: Healthy performance led by strong business growth.
* Advances grew 12.5% YoY to | 40934 crore. Deposits up 9.3% YoY with CASA growth at 25% YoY
* NII up 17.3% YoY, 4.8% QoQ. NIMs declined marginally 6 bps QoQ at 3.95%
* GNPA down 5 bps QoQ to 4.65%. Restructured book declined to ~5%
What should investors do? City Union Bank’s share price has increased by ~25% in the past five year. Healthy capitalisation, secured loans and improving asset quality trend are key positives
Key triggers for future price performance:
* The management revised their credit growth guidance upwards to 15-18%, which is encouraging. Business momentum to see uptick from here on
* Opex to remain elevated, though steady margin at ~4% and business growth to aid operational performance and return ratios
*Asset quality hiccups fading away as incremental stress formation under control
Alternate Stock Idea: Apart from City Union Bank, in our coverage we also like CSB Bank.
* CSB Bank is a south based private sector bank with Kerala contributing ~48% of total business. Changed strategy in various aspects of lending has led to transformation and improved performance in the past few years
* BUY with a target price of | 250
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