| City Union Bank-Improvement On All Parameters. Why The Under-valuation? BSE 532210; CMP Rs 35 The City Union Bank Mgt meets tommorrow to approve a Rs 250 crore QIP-this issue will be roughly 25 per cent the size of it's current networth and would allow the Bank to increase it's credit book by atleast Rs 2500 crore.
In Q4FY10, City Union Bank (CUB) performance was in-line with our estimates on operating profit level but due to much higher bad-debts provisioning the bank reported bottomline of Rs348 mn lesser than our estimates of Rs401 mn. The bank's quarterly result reflects better earning quality on the back improvement in CASA share, margin and fall in gross NPAs.
We revise our earning estimates upward by 2.6% and 1.1% for FY11 and FY12 to factor in improvement in bank's deposit profile, expansion in margin and better asset quality.
We increase our target price by 16.7% to Rs42 and upgrade stock rating to BUY from previous rating of Out Performer. At current price, the stock quotes at 1.1x adjusted book value FY12 and based on our target price the stock would trade at 1.4x ABV FY12.
The key positives of the quarterly were sharp growth in CASA deposits, improvement in margin, betterment in asset quality and much higher loan-losses provisions. Sharp growth in credit offtake in some of the segments (like agriculture and SME) was a matter of concern though the base was quite low in previous year.
Strong growth in business: During Q4FY10, CUB's total business grew by 24% (Y/Y) onthe back of 21% growth in gross advances and 25% growth in deposits. Current and savings deposits grew by 58% and 34% respectively leading to improvement in CASA share to 21.9% from 18.9% in Q4FY09 and 20.1% in Q3FY09. Growth in credit mainly came from agriculture, SME and retail segments; these segments grew by 70%, 37% and 26% (Y/Y) respectively. 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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