City Union Bank shares fall; Macquarie downgrades rating, cuts target price

Macquarie expects a decrease in sustainable RoA by 10 basis points on a negative outlook for growth and lower margins.

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Shares of Tamil Nadu-based City Union Bank declined a percent in the early trade on June 1 after research firm Macquarie downgraded its rating to "Neutral" and slashed the target price from Rs 175 per share to Rs 140 per share. Macquarie expects a decrease in sustainable Return on Assets (RoA) by 10 basis points (bps) on a negative outlook for growth and lower margins.

It highlights the significant underperformance of City Union Bank in terms of growth relative to its peers. This implies that the bank's growth rate has been lower than expected or compared to other similar banks in the market.

Looking ahead, Macquarie expects that the RoA for the fiscal year 2024 will be contingent on healthy recoveries. This suggests that the bank's ability to generate returns will depend on successful recovery of loans and other assets.

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On the other hand, broking house Sharekhan, in its latest report, has maintained 'Hold' rating on the stock with a revised target price of Rs 145.

Overall, the outlook continues to remain challenging for the bank in FY2024 led by margin pressure, back-ended credit growth, higher stressed assets versus peers, and sub-optimal PCR in turn higher credit cost, said Sharekhan.

The financials

The company in the quarter ended March 2023 has posted a net profit of Rs 218 crore versus Rs 209 crore, in the year ago period. Its total income increased to Rs 1,423 crore against Rs 1,252.87 crore, YoY.

At 09:26 hrs City Union Bank was quoting at Rs 124.75, down Rs 0.50, or 0.40 percent on the BSE.

The share touched a 52-week high of Rs 204.95 and a 52-week low of Rs 120.45 on 15 December, 2022 and 29 March, 2023, respectively.

Currently, it is trading 39.13 percent below its 52-week high and 3.57 percent above its 52-week low.

The share price slipped 34 percent in the last 6 months.