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Chola Securities
City Union Bank (Outperformer)
CMP: ₹212.3
Target: ₹228
During 4QFY19, City Union Bank’s advances grew by 17.1 per cent y-o-y (beating CSEC estimate of 11.5 per cent) to ₹33,065 crore, driven by growth in — agriculture (19.5 per cent y-o-y); retail trade segments (8.6 per cent y-o-y) and MSME (7.3 per cent y-o-y). The wholesale trade segment also grew by 12.3 per cent y-o-y while jewel loan, non-agricultural de-grew 5.7 per cent y-o-y. The management has reiterated that it expects an overall growth in loan book of 18-20 per cent going forward in FY20E, to be predominantly driven by RAM segments.
Valuation: CUB’s well-maintained asset quality coupled with superior margins paint a positive outlook for the bank. However, slower ramp up in other income coupled with slippages continuing to be at the higher end of the guidance range could defer the earnings growth for the company. Also, in the recent rally, the stock seems to currently have priced in most of the positives and is trading at a P/ABV of 2.7X of FY21E. Hence we rate the stock an ‘Outperformer’, while maintaining the target price of ₹228, assigning a P/ABV of 2.8X FY21E.
Risks: Systemic slow down in credit growth, weakness in asset quality led by higher slippages from stressed sectors.
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