ICICI Direct is bullish on City Union Bank has recommended buy rating on the stock with a target price of Rs 240 in its research report dated May 20, 2019.
ICICI Direct's research report on City Union Bank
City Union Bank (CUB) reported steady operating profit of Rs 338 crore on the back of stable NII growth of 14.3% YoY at Rs 421 crore & strong other income growth of 22.6% YoY at Rs 147 crore led by higher recoveries from written off account. Margins remained flat QoQ at 4.4% as rising cost of fund was offset by increase in yield on advances. Credit growth remained consistent at 17.3% YoY at Rs 32673 crore, led by growth in agriculture & retail book by 19% & 18% YoY, respectively. Reclassification of certain business loan backed by commercial real estate a collateral impacted SME growth. Deposit growth was stronger at 17% YoY at Rs 38448 crore, highest in last 20 quarter on back of 25% YoY & 15% YoY growth in savings & current deposits. Accordingly, CASA ratio stood at 25.2%, up 100 bps YoY & 137 bps QoQ.
The bank has consistently delivered healthy business growth along with 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 18-20%, stable margins and controlled asset quality. We continue to prefer CUB as it is well placed among regional players and comfortable on the capital front with tier-I ratio at 15%. 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 240 (earlier Rs 225) valuing at a multiple of 2.6x FY21E BV.
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