Prabhudas Lilladher's research report on City Union Bank
CUB saw a strong quarter with beat on NIM, fees, opex and asset quality. Focus is on expanding in secured retail, micro-LAP and housing, while unsecured retail has been started on a test case basis; book as of Q1FY25 stood at Rs40-50mn. Double-digit growth target is maintained for FY25, and we are factoring 12% CAGR over FY24-26E. As per draft RBI circular, LCR is expected at 115-125%. NIM is likely to remain stable from hereon as CUB does not expect any more aberrations in interest income and funding cost has nearly peaked. Opex would remain elevated over the near term due to digital lending and software spends, and hence, cost to income is guided to range from 48-51%. While CUB expects newer segments to contribute 15% to loans in the next 5 years, execution is a key due to competition.
Outlook
As most headwinds are over, we increase multiple on FY26 ABV to 1.4x from 1.3x and raise TP to Rs185 from Rs170, but retain ‘ACCUMULATE’ as execution is a monitorable.
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