Hold City Union Bank; target of Rs 186: Arihant Capital
Arihant Capital recommended hold rating on City Union Bank with a target price of Rs 186 in its research report dated February 19, 2021.
February 22, 2021 / 04:12 PM IST
Arihant Capital's research report on City Union Bank
City Union Bank (CUB) reported mixed performance during Q3FY21 with strong operating profit growth and weakness on asset quality. NII for the quarter grew by 14.5% YoY with strong operating profit growth of 49% YoY. Provision remained higher at INR 219 cr as bank has created further additional Covid provision of INR 125 cr. Total Covid provision as on 9MFY21 stood at INR 465 cr (~1.3% of advances). The bank has reported 12% YoY decline in net profit at INR 170 cr due to higher provision. Asset quality trend of the bank was weaker than peers as proforma slippages of the bank stood at INR 1,150 cr with overall restructuring being guided at 5% (~2.2% restructured as on Dec’20).
Operating performance of the bank was healthy but profit growth was impacted due to higher credit cost given the near term stress in the business. With the restructuring book expectation of 5-6% of the book and slippage guidance of 3-3.5%, the asset quality of the bank would be the key monitorable going ahead. Near term outlook will remain challenging primarily on asset quality front. We maintain our Hold rating on the stock with a revised target price of INR 186 (INR 169 earlier), valuing the bank at P/adj. BV of 2x FY23E ABV.
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