- The bank has been focusing on low yield gold loan disbursement
- Due to the impact of NPA divergence, net profit declined 21 percent QoQ.
Company: City Union Bank
(12 months investment tenure)
Current Market Price: Rs.139; Target Price: Rs.159; Profit: 15%.
Financial Intermediary: Geojit Financial Services Ltd
City Union Bank Ltd. (CUB), the oldest private sector bank in India, is a mid-sized commercial bank headquartered in Tamil Nadu, with a network of 752 branches spread across the country and a loan book size of Rs.43,009cr .
Its business growth was subdued compared to industrial growth, with advances and deposits growing flat sequentially.
The bank has been focusing on low yield gold loan disbursement and as a result, the portfolio grew by 31% YoY, constituting 25 percent of the total loan book.
Yield on advances declined 23bps sequentially to 9.16 percent and as a result, NIM contracted 21bps sequentially to 3.88 percent.
Due to the impact of NPA divergence, net profit declined 21 percent QoQ.
Asset quality expected to improve gradually
During the quarter, the bank's asset quality took a hit due to higher slippages. Total slippages for the quarter stood at 1%. Of the total gross slippage of Rs.439 crore, the impact of NPA divergence amounts to Rs.140 crore. As a result GNPA for the quarter surged 26bps to 4.62 pervent. Total restructured book stood at 4.0 percent of the advances, compared to 4.6 percent last quarter. The management expects slippage ratio of 2.5-2.8 percent in FY23 and gradually subside to 2.0-2.5 percent going forward. We anticipate a gradual recovery in asset quality, with GNPA at 4.0 percent by the end of FY24.
We recommend Accumulate rating on the stock based on 1.35x Adjusted BVPS of FY25E with a target price of Rs.159.
The above article is based on a report by Geojit Financial Services. Investing in stock market is subject to risk of loss. Take the advice of your financial expert before making investments in this regard. Myfin Point and the author are not responsible for any profit or loss that may occur based on the decision taken after reading the article.