City Union Bank shares gained 9 percent intraday on August 10, overcoming volatility in the market to hit a 9-month high after strong June quarter earnings and improved asset quality.
The stock was trading at Rs 175.25 on the BSE, up 7.65 percent with robust volumes at the time of writing.
It formed a large bullish candle on the daily charts and hit an intraday high of Rs 176.95, the highest level since October 27, 2021. The stock also decisively broke the long down sloping resistance trendline, adjoining November 17, 2020 and October 26, 2021.
The private sector lender on August 9 reported a 30 percent year-on-year growth in profit at Rs 225 crore for the quarter ended June 30, 2022, aided by healthy pre-provision operating profit, & other income, and declining provisions for bad loans.
Net interest income, the difference between interest earned and interest expended, grew by 17 percent YoY to Rs 525 crore in Q1FY23, with credit growth at 12 percent and deposits growing 9 percent for the quarter.
"City Union Bank saw yet another strong quarter with core earnings at Rs 2.0bn beating estimates by 7.5 percent led by better NII and stronger AUCA (advance under collection account) recoveries. Stressed exposure at around Rs 4,500 crore is performing well and has reduced QoQ," said Prabhudas Lilladher.
The brokerage retained "buy" call on the stock and revised the price target from Rs 170 to Rs 190.
Net interest margin expanded to 3.95 percent for the quarter ended June FY23, up from 3.86 percent in the corresponding period last fiscal.
Provisions and contingencies fell by 9.4 percent YoY to Rs 152 crore. The bank said it has made a provision of Rs 222 crore as of June 2022. "The total provision towards bad and doubtful debts is Rs 140 crore in Q1FY23 as against Rs 233 crore in the corresponding quarter last of year."
The asset quality improved, with the gross non-performing assets as a percentage of gross advances falling 94 bps YoY to 4.65 percent and net NPA declining 60 bps YoY to 2.89 percent for June FY23 quarter.
With comfort on asset quality, the focus is back on growth. The lender raised FY23 loan growth guidance from 12-15 percent to 15-18 percent, Prabhudas Lilladher said.
SpiceJet has agreed to clear dues before June 2023 with renewed terms also providing adequate collateral. As it is fully provided (Rs 97 crore), an upgrade could cushion the balance sheet.
"Drivers are in place for margin to improve and we expect NIM to enhance by 11bps YoY to 3.77 percent in FY23," the brokerage said. As it raised FY23 and FY24 core earnings by an average 9 percent, it increased multiple from 1.7x to 1.9x.
Non-interest income in Q1FY23 increased by 12.5 percent to Rs 217.54 crore and pre-provision operating profit grew by 17.3 percent to Rs 447 crore compared to same period last year.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.