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Sharekhan’s research report on City Union Bank
We believe credit cost is expected to remain higher due to– a) Total stressed assets stand at 6.7% of loans with sub-optimal coverage of ~42%; b) The bank has guided that slippages in FY2024E are expected to remain higher (2-2.5%), above pre-Covid levels despite muted growth in the past two years and benign credit cycle, partly offset by recoveries and upgrades. CUB reported PAT of Rs. 218 crore (up 11% y-o-y/down 21% q-o-q), below consensus and our estimates, led by higher core credit cost reported at 2.5% annualised vs. 1% q-o-q and 0.9% in Q3FY2022. Loan growth for FY2023 is expected to be lower than the earlier guided range of 15-18%, citing lower risk appetite and muted deposit growth. Slippages were at Rs. 439 crore (4.6% annualised based on trailing 12-month advances) vs. 2.8% q-o-q and 3.1% in Q3FY2022. However, slippages of Rs. 185 crore were mainly attributed to divergence in GNPA reported for FY2022. GNPA and NNPA were reported at 4.62% (higher by 26 bps q-o-q) and 2.67% (stable q-o-q), respectively. CUB trades at 1.8x/1.6x/1.4x its FY2023E/FY2024E/FY2025 ABV, respectively.
Outlook
We downgrade City Union Bank (CUB) to Hold from Buy with a revised TP of Rs. 176. Our downgrade factors in weak business outlook compared to peers despite strong sector tailwinds and recent lapses in internal controls. Key monitorables remain RBI’s approval on the reappointment of existing MD and CEO (tenure ends in April 2023).
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City Union Bank - 09 -03 - 2023 - khan