Stock market outlook

On NSE, the current market price (CMP) of City Union Bank Ltd is Rs 180.10 each. The stock’s 52-week low is Rs 109 each recorded on March 7, 2022, and the 52-week high is Rs 191.95 each recorded on October 26, 2022. It is a bank stock small cap having a target price of Rs 13,319.92 crore.

    Returns over 5 years

Returns over 5 years

Over the past week, the stock has fallen 4.2%, while it has jumped 10.32% over the past month. Over the past 3 months, the stock has jumped 26.7%. Over the past 1 year, the stock has fallen almost 14.9%. Over the past 3 years, it has given a negative return of 11.3%. Over the past 5 years, the stock has given a positive return of 23.47%.

Progression of growth driven by the Gold portfolio

Progression of growth driven by the Gold portfolio

In Q1FY23, total bank activity increased 11% yoy, with deposits increasing 9% yoy and 2% sequentially, while advances increased 12% yoy while declining slightly on a sequential basis. The high-yield working capital loan constitutes 62% of the advances while the term loan contributes 37%. Growth in advances was driven by gold loans which increased 37% year-on-year and constitute 23% of gross advances. Total gold loans outstanding in Q1FY23 stands at Rs.9,494.4cr compared to Rs.6,906.0cr a year ago and Rs.9,003.3cr in the previous quarter. On the deposits front, CASA was up 25% year-on-year, with savings deposits up 20% year-on-year and demand deposits up 39%. The bank’s CASA ratio stood at 31.5% compared to 32.6% in the previous quarter. The sequential decline in the CASA mix is ​​due to a 1.5% decline in savings deposits. Management expects growth to improve to 15-18% in FY23. The bank’s capital adequacy ratio is comfortable at 20.5% versus 20.9% in Q4FY22.

    Net interest income increased 17.3% year-on-year and 4.8% quarter-on-quarter

Net interest income increased 17.3% year-on-year and 4.8% quarter-on-quarter

Net interest income (NII) for the quarter increased 17.3% year on year and 4.8% quarter on year, with interest income growing 10.2% year on year and by 4.7% over one quarter and interest charges increased by 4.5% over one year and 4.6% over one quarter. Net interest margin declined sequentially by 6 basis points to 3.95%. The cost of deposits fell 11 bps sequentially and 52 bps year-on-year to 4.43%, while the yield on advances fell 22 bps sequentially and 36 bps year-on-year to 9.04%. The decline in yield despite the rise in rates was partly due to a lag effect and the growing mix of gold loans yielding below the bank’s average yield. 65% of the bank’s advances are linked to EBLR while 25% are linked to MCLR while only 10% of the advances are fixed in nature. Pressure from the rising bond yield was seen in Treasury revenues, which fell 80% year-on-year to 20.9 cr. The bank’s profit before provision rose 16.7% year-on-year and 1.7% sequentially. The bank announced a PAT of Rs.225.0cr registering a growth of 30.0% YoY and 7.7% QoQ. The Bank’s PCR came in at a comfortable 64%, in line with Q4FY22.

    Marginal improvement in asset quality

Marginal improvement in asset quality

GNPA/NNPA for the quarter improved slightly to 4.65%/2.84% from 4.70%/2.89% in Q4FY22. The annualized run rate was 2.6% compared to 3.1% in FY22. Total restructured books as a percentage of gross advances was 5.0%, amounting to Rs.2033.7cr during the quarter. We expect a gradual recovery in asset quality with a GPA of 4.0% by the end of FY23.

Outlook and valuation

Outlook and valuation

Bank posted a decent performance during the quarter. Management has raised its loan growth forecast for FY23 to 15-18%. We expect ROE/ROA to improve to 13.7%/1.6% by FY24. With improved growth prospects, we upgrade our valuation to 2.1x FY24E Adj BVPS and recommend the Accumulate rating with a target price of Rs.209.

Disclaimer

Disclaimer

The stock was picked up in Geojit’s brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

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