Accumulate City Union Bank; target of Rs 160: Prabhudas Lilladher

Prabhudas Lilladher's research report on City Union Bank

CUB saw a weak quarter as core PPoP missed PLe by 8.5% due lower NII/NIM. However, asset quality was the silver lining as GNPA/OTR reduced by 25/117bps QoQ. For FY24E, bank guided for 12-15% loan growth that would be back-ended while it expects reported NIM to decline YoY from 3.9% to 3.7%. Intent is to keep RoA at 1.5% driven by higher recoveries and moderating provisions. CUB has tied up with BCG to help in risk assessment, pricing, portfolio modelling and digital lending. SME credit model of CUB is challenged due to competitive intensity as yields fell by 13bps YoY in FY23 compared to 100bps rise for private banks although asset quality is expected to improve over FY23-25E and valuation is favourable at 1.2x on FY25E ABV.

Outlook

We trim NIM by 18 bps to 3.5% and reduce multiple from 1.8x to 1.4x due to growth/pricing pressures emanating from higher competition. Downgrade from ‘BUY’ to ‘ACCUMULATE’ and rolling forward to Mar’25 our TP is Rs160 (earlier Rs190).

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