Accumulate City Union Bank; target of Rs 185: Geojit Financial Services

Geojit Financial Services recommended accumulate rating on City Union Bank with a target price of Rs 185 in its research report dated June 20, 2024.

Broker Research

June 21, 2024 / 12:42 IST

Accumulate

Geojit Financial Services research report on City Union Bank

City Union Bank Ltd. (CUB), the oldest private sector bank in India, is a mid-sized commercial bank headquartered in Tamil Nadu, with a network of 800 branches spread across the country and a loan book size of Rs.46,482cr. Loan growth was healthy on a sequential basis at 5.6%, but it was mediocre on a YoY basis at 5.7%. The regulatory actions impacted the gold portfolio, forcing the bank to trim down its Agri-gold loans. Yet, its non-Agri Gold loan portfolio grew by 21%YoY. Currently, gold portfolios constitute 25% of the total loan book. Yield on advances increased by 23bps sequentially to 9.85%, and the cost of deposit only increased by 8bps, resulting in the NIM expanding by 16bps sequentially to 3.66%. Asset quality continues to improve, with GNPA/NNPA standing at 3.99%/1.93%, respectively, compared to 4.47%/ 2.14% during Q3FY24. We expect the current trend of reducing slippages and increasing recoveries to continue in FY25 as well.

Outlook

While the bank refrained from providing loan growth guidance, we expect the loan growth to accelerate to the previous guidance of 12 –13% in FY25–26. We estimate ROA to remain broadly stable at 1.4 –1.5% by FY25-26E. Therefore, we reiterate our rating of Accumulate with a revised target price of Rs.185, based on 1.3x FY26E BVPS.

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