City Union Bank an outperformer: Karvy Stock Broking

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City Union Bank an outperformer: Karvy Stock Broking

Karvy Stock Broking has maintained an outperformer rating on City Union Bank with a target of Rs 58 in its December 23, 2010 research report.

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Karvy Stock Broking has maintained an outperformer rating on City Union Bank with a target of Rs 58 in its December 23, 2010 research report. 

"City Union Bank (CUB) expects its business growth to be above industry growth due to lower base. It expects its total business to grow at a rate of 30% for FY11 and FY12. The bank's total business grew by 14.1% year to date (YTD) as on Q2FY11, with advances and deposits growing at a rate of 17.6% and 11.8% YTD respectively for the same period. The bank expects its advances to grow by over 30% for FY11 and FY12."

"CUB management had earlier said that it would raise equity amounting to Rs 3.0 billion via Qualified Institutional Placement (QIP) to support its growth initiatives. However, it has further clarified that it would raise Rs 1.0 billion by March 2011 and rest of the amount would be raised in FY12. Consequently we expect EPS dilution of 1.2% and 14.1% for FY11 and FY12 respectively. We now expect an EPS of Rs 4.8 and Rs 5.4 for FY11 and FY12 respectively compared to an EPS of Rs 4.9 and Rs 6.3 for the same period without capital infusion. We expect tier 1 capital ratio to increase to 11.3% from 10.3% for FY11 and to 11.8% from 9.5% in FY12. We expect RoAE to get diluted to 20.5% from 21.6% in FY11 and to 19.4% from 22.8% in FY12."

"We estimate CUB's RoAA of 1.5% for FY11 and FY12 and RoAE of 20.5% and 19.4% for FY11 and FY12 respectively. We have raised our estimates on credit growth to 32% and 30% for FY11 and FY12 respectively, from earlier estimates of 27% and 28% for the same period. We expect the bank's NII and net profit to grow at a CAGR of 34% and 28% respectively for FY10-FY12. We upgrade our EPS estimates for FY11 and FY12 by 24.1% and 15.1% to Rs 4.8 and Rs 5.4 respectively on better earnings visibility backed by strong and sustainable credit growth and lower credit costs."

"We have raised our price target by 38% to Rs 58 at 1.8x FY12 book value and 2.2x FY12 adj. book value. We have revised our P/BV multiple to 1.8x from 1.4x and P/ABV multiple to 2.2x from 1.9x on account of higher RoAE. We therefore upgrade our rating on the stock to 'Out performer' from 'Underperformer'," says Karvy Stock Broking research report.

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To read the full report click on the attachment