Buy City Union Bank; target of Rs 210: Prabhudas Lilladher

Prabhudas Lilladher's research report on City Union Bank

CUB saw a good quarter with beat on core PAT due to stronger fees led by insurance and processing fees. Sales focus has led to better insurance fees and bank sees more scope to enhance this stream. Reported NIM slightly improved QoQ as lower yielding loans were shed. While the bank is targeting stable NIM for FY26E, repo rate cut would impact NIM. CUB met its slippage guidance of Rs8bn for FY25 and it expects slippages for FY26 to be lower at Rs7bn; PCR has touched 60%. This implies that provisions may be steady in near term (54bps in FY25).

Outlook

We cut NIM for 26/27E by 6bps each due to rate cuts and increase opex by ~2% led by secured retail focus. This would be offset by upgrade in fees by ~11.5%. With core RoA profile of 1.4%, we keep multiple at 1.4x but raise TP to Rs 210 from Rs 200 as we roll forward to Mar’27. Retain ‘BUY’.