**[investwise]** City Union Bank-The Rs 300 cr QIP could be a Game Changer

 

City Union Bank recently proposed to raise Rs 300 crore through a QIP. The successful completion of this issue will not only raise City Union Banks book value, but also raise the CAR, allowing it to grow it's loan book by atleast Rs 2000 crore leading to a quantum jump in the Asset size under it's management. Given the markets fancy for private sector and a consequent higher Price To Book Value, roughly 2.5 times BV of FY12 the stock should trade upwards of Rs 55 to Rs 60, a near doubling in valuations over 2 years. Recently we met with City Union Bank's (CUB) management to update ourselves on the bank's status on business growth, profitability and asset quality. Key takeaways of the discussion are as follows.   • The bank's management plans to add 60 new branches in FY11: CUB's management plans to open 60 branches in FY11 with a focus on northern India region. During FY05-10, the bank reported 10% compounded annual growth in branch network expansion.   • Robust growth in business: The bank's management expects 27-28% growth in business in FY11 on the back of 28% growth in credit portfolio and 27% growth in deposits.   • Healthy margin: In the new lending interest rate regime, CUB's management expects to maintain margin in FY11; it is expected that impact of the base rate system would be visible only after two quarters.   • Asset quality; a comfort zone: In FY10, the bank reported total NPA recovery of Rs531 mn and total gross slippages was at Rs1.1 bn (1.71% gross slippages ratio); gross NPAs reduced by 8.4% (Y/Y) to Rs935 mn. We estimate that in FY11, GNPA would increase by 2.4% (Y/Y) to Rs957 mn on the back of lesser slippages and recoveries.   Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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