ICICI Securities recommended hold rating on City Union Bank with a target price of Rs 130 in its research report dated June 19, 2020.
ICICI Securities research report on City Union Bank
Also, near-term triggers for positive surprise are limited, hence current premium multiple (1.7x FY21 P/BV) is likely to re-set lower. While we repose faith in CUBK’s SME financing niche coupled with its robust retail liability franchise to manage the crisis effectively, its 10% exposure to vulnerable segments like tourism, hotels, CREs, LRDs, etc. poses risk of near-term volatility in asset quality and earnings. CUBK’s Q4FY20 earnings were impacted by higher provision at Rs4.5bn (of which Rs1.25bn or 29bps is towards Covid-related contingency buffer) and muted core business performance with: a) credit growth remaining muted at 4% YoY/flat QoQ; b) margin contraction of 5bps QoQ; c) asset quality deterioration with fresh slippages at Rs4.8bn (>5% run rate).
We downgrade City Union Bank (CUBK) to HOLD (from Buy) with a revised target price of Rs130 (earlier: Rs165) after it reported its first quarterly loss, breaking a decade-long consistency in returns and asset quality.
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