Buy City Union Bank; target Rs 53: Dolat Capital

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Buy City Union Bank; target Rs 53: Dolat Capital

Dolat Capital is bullish on City Union Bank (CUB) and has recommended buy rating on the stock with a target price of Rs 53 in its February 3, 2012 research report.

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Dolat Capital is bullish on City Union Bank (CUB) and has recommended buy rating on the stock with a target price of Rs 53 in its February 3, 2012 research report.

"In Q3 FY12, City Union Bank's (CUB) NII grew 17.3% YoY to Rs 1.2bn - in line with our estimates. However, NIM fell to 3.24% from 3.48% in Q3 FY11 and 3.41% in Q2 FY12. Operating expenses rose 34% to Rs 686mn, whereas other income grew 40% to Rs 508mn from Rs 363mn in Q3FY11, resulting in a 17% YoY jump in operating profit to Rs 1.05bn (Dolat est: Rs 1.01bn). CUB reported a bottom-line of Rs 722mn compared to our estimates of Rs 628mn and consensus estimate of Rs 677mn. Sharp decline of 67% YoY in tax expenses to Rs 71mn from Rs 215mn aided bottom-line growth. During the quarter, gross NPA ratios largely remained stable at 1.17% on sequential basis. Provision coverage ratio decreased to 76% from 79% in Q2 FY12. Overall, asset quality remains firm, though the bank made lesser NPA provisions. We see business growing 28% CAGR in FY11-13."

"We factor in margin compression of 25bps in FY12 as well as FY13 to 3.07% and 2.82% respectively (yearly average). We estimate that CUB will report RoAA of 1.3-1.6% and RoAE of 19-24%. We increase our FY12 earnings estimates by 6% due to better asset quality; however, we maintain our FY13 earnings estimates and target price at Rs 53 at 1.5x adjusted book value FY13. We reiterate our Buy rating on the stock with a potential 23% upside. At current market price, it trades 1.2x FY13 (ABV) respectively," says Dolat Capital research report.

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To read the full report click on the attachment