Hold City Union Bank; target of Rs 165: Sharekhan

Sharekhan recommended Hold rating on City Union Bank with a target price of Rs 165 in its research report dated October 21, 2024.

Broker Research

October 22, 2024 / 12:16 IST

Hold

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Sharekhan's research report on City Union Bank

Earnings grew by a mere 2% y-o-y on the back of higher provisions although operating profits rose ~11% y-o-y. The bank reported higher credit cost at 59 bps of average advances (annualised) vs 34 bps q-o-q and 53 bps y-o-y to shore up the PCR levels (55% vs 53% q-o-q). Asset quality is comfortable as net slippage remained negative for the fifth consecutive quarter as recoveries continued to outpace fresh slippages (1.7% stable q-o-q). GNPA/ NNPA ratio declined sharply by 34 bps/ 25 bps q-o-q. Loan growth is gradually picking up albeit on low base, up 12% y-o-y versus 10% in Q1. Incremental growth remained largely from the traditional core MSME segment and bank is reasonably confident to grow at par with the system growth in H2FY25.

Outlook

Stock trades at 1.3x/1.1x its FY2025E/FY2026E ABV. We maintain Hold rating with a revised PT of Rs. 165 given sustained healthy growth/ profitability still has a long way to go as new businesses are likely to take time to deliver healthy RoE trajectory.

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