City Union Bank may touch Rs 218: Anand Rathi

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26 Aug, 2025 12:21

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Anand Rathi

City Union Bank reported 4.41 percent NIM (up 9bps q/q) in Q3 FY19, largely helped by higher pass-through of costs in yields and a higher credit-deposit ratio. We expect NIM to decline from current levels and, however, hold above 4 percent in the medium term.

Stressed assets (GNPA and standard restructured loans) are now ~2.9 percent of loans (down 43bps y/y, up 4bps q/q). Management maintains its guidance of a 1.5-2 percent slippage ratio for FY19; we have modelled it at 1.9 percent (of the loan book).

The focus on small-ticket secured lending has helped the bank maintain sound asset quality in the past few years despite the industry being under severe asset-quality stress.

Besides, with 14.8 percent capital adequacy (14.4 percent tier-1), the bank is sufficiently capitalized for high-teen loan growth in the medium term.

The bank’s PPOP was Rs 3.07bn (up 3.5 percent y/y, 3.7 percent q/q). Lower realization from Treasury mostly led to flat PPOP growth. Lower credit cost, however, drove a stable, 15.6 percent, RoE. We expect the bank to maintain 15 percent+ RoE over the medium term.

We are positive about the bank’s loan-book growth, largely driven by granular and secured high-yielding MSME loans, agriculture loans, retail loans and loans to traders. Our Jan’19 target of Rs 218 is based on the two-stage DDM model. This implies a ~2.9x P/ABV multiple on its FY21e book.

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