ICICI Direct is bullish on City Union Bank has recommended buy rating on the stock with a target price of Rs 225 in its research report dated January 29, 2019.
ICICI Direct's research report on City Union Bank
NII witnessed a continued pick-up in growth trajectory at 14.5% YoY to Rs 418 crore, in line with our estimate, led by healthy credit offtake Other income was at Rs 120 crore; down 1.5% YoY, lower than our estimate, attributable to a subdued treasury performance. Accordingly, operating profit was muted at Rs 307 crore, up 3.5% YoY Provisions were at Rs 79 crore, down 8.1% YoY & 16% QoQ. Lower-than-expected tax outgo at Rs 50 crore, led earnings growth at 15.1% YoY to Rs 178.1 crore, broadly in line with our estimate Slippage remained higher at ~Rs 165 crore, led by one large exposure, highlighted earlier. This led to a sequential increase in absolute GNPA and NNPA to Rs 892 crore and Rs 528 crore, respectively. However, overall asset quality largely continues to stay under control. Exposure to two NCLT accounts is fully provided. CUB has not availed dispensation with respect to MSME in the quarter Advances growth remained steady at 17.4% YoY to ~Rs 30637 crore.
The bank has consistently delivered healthy business growth along with keeping a tab on asset quality. CUB has guided at maintaining RoAs >1.5%+ and RoE ~15%, going ahead, on the back of healthy credit growth of 17-19%, strong margins and controlled asset quality. We expect PAT CAGR of ~13.6% in FY18-20E with RoEs at ~15% and RoAs at ~1.6%. We continue to prefer CUB as it is well placed among regional players and comfortable on the capital front with tier-I ratio at 14.4%. CUB has historically traded at a premium to other regional banks due to better return ratios and a consistency in earnings. We maintain our BUY rating and target price of Rs 225 with a multiple of 3x FY20E BV.
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