Buy City Union Bank for target of Rs 240: CD Equisearch

Broking house, CD Equisearch is bullish on City Union Bank. It has recommended buy rating on the stock with a target price of Rs 240.

The CD Equisearch report on City Union Bank:

Company Brief

“City Union Bank started its operations in 1904 in the state of Tamil Nadu. Currently the bank has presence in 7 states and 2 union territories with 157 branches. The Bank has entered into a franchise agreement for the Money Transfer Service Scheme of M/S Western Union Financial Services Inc. USA with their agents in India M/S AFL Pvt. Limited.”

Highlights

“The financial system is the lifeline of the economy. The India Vision aims to have an annual growth in the GDP of 8.5% to 9% over the next 20 years. Economic development of this magnitude would see quadrupling of real per capita income. This will call for considerable investments in the infrastructure sector thereby resulting in better credit offtake.”

“In the next 10 years the SME sector will emerge more competitive and efficient and knowledge-based industries are likely to acquire greater prominence. With SME sector emerging as a vibrant sector of the Indian economy, flow of credit to this sector would go up significantly. The financial needs of the SME segment will open up a huge and totally unexplored opportunity for Indian Banks.”

“All the branches of City Union Bank are fully computerised. In November 2005 City Union Bank joined the National Financial Switch, NFS under which the banks’ ATM cards can be used across more than 9000 ATM’s. The bank plans to curtail net NPA levels to 1% by FY2007.”

“At the current price of Rs 124, CUB is trading at 3.60x FY08E earnings, we feel the valuation is attractive due to declining NPA levels, good dividend track record, expected CAGR in excess of 20% over the period FY2007 and 2008 and not to forget the fact that the bank is an ideal takeover candidate for any bank which seeks to make a considerable presence in the southern part of the country. We rate the bank as a strong buy with a target price of Rs 240 in a period of 12-15 months.”