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

Prabhudas Lilladher's research report on City Union Bank

CUBK saw a weak quarter. Although, core PPoP was 6.7% ahead of PLe owing to better NIM, loan growth continues to disappoint while asset quality too saw a blip due to accounting change. Credit decline (3.9% QoQ) was higher than usual Q1 run-rate led by lower utilization and higher prepayments in agri/gold. However, bank expects credit growth to pick up in H2FY24 driven by better MSME investment cycle. While CUBK would like to grow by 12-14% in FY24, execution remains a key due to competitive intensity.

Outlook

Hence we are factoring a 10% loan growth for FY24. To propel credit offtake, bank has tied up with BCG to (1) scale up retail/digital lending and (2) streamline processes that should reduce TAT from 7-15 days to 1-2 days. Bank expects newer segments to contribute 15% to overall loans in 5 years. We maintain multiple at 1.4x on FY25E ABV and keep TP unchanged at Rs160. Retain ‘ACCUMULATE’.