Hold City Union Bank; target of Rs 185: Sharekhan

Sharekhan's research report on City Union Bank

Earnings grew 13% y-o-y on healthy operating profit growth that was partially offset by higher provisions resulting in RoA/RoE at 1.6%/12.6%. Net slippages remained negative for the sixth consecutive quarter as recoveries continued to outpace fresh slippages and thus higher provisions drove up PCR levels. Core PPoP growth was strong at 18% y-o-y led by a pick-up in loan growth to 15% y-o-y/ 6% q-o-q, strong fee income, recoveries from W/O accounts and contained opex growth. NIM fell by 9 bps q-o-q. Deposit growth was relatively lower at 11% y-o-y/2% q-o-q resulting in LDR at 87% versus 83% q-o-q. Stock trades at 1.5x/1.3x/1.1x its FY2025E/FY2026E/FY2027E ABV.

Outlook

We maintain Hold rating with a revised PT of Rs. 185. Loan growth is unlikely to see further acceleration from current levels, RoE would remain lower at 12-13% in the near term as tailwinds from higher recoveries fade in next two quarters and higher investments are required for scaling up retail business.