Union bank

Anand Rathi bets on City Union Bank and makes a buy call for a gain of up to 29%

1. Strong profits recorded by City Union Bank

According to Anand Rathi, City Union Bank recorded strong profit growth. The CUB’s return on assets (RoA) at 1.42% recorded its highest level after the third quarter of fiscal 2020. The main positive points of the quarter are the recovery of loan growth, the moderation of the slippage, stable margins, solid liquidity and capitalization. The brokerage firm expects slippages to further ease and earnings to improve. Based on these patterns, the brokerage firm gave a buy call with the TP of 180 (the earlier target price was 170).

2. The slippages of the City Union Bank

2. The slippages of the City Union Bank

Slippages for the quarter remained at Rs 2.2 billion (2.2% of loan), the lowest of the last 5 quarters. Moderate slippages and robust recoveries led to a 51 basis point sequential improvement in the GNPA ratio to 4.7%. Anand Rathi expects slip-ups to become normal. The standard restructured portfolio remained at Rs 21.8 billion (5.4% of loans).

3. Results and valuation of City Union Bank

3. Results and valuation of City Union Bank

The brokerage firm commented on earnings and valuation. According to him, earnings should remain strong, as he said: “With a resumption of business growth and the scenario of higher interest rates, margins should increase from current levels. Higher growth activities and improved operational performance would help CUB achieve RoA levels of 1.5% in H2 FY23.” Regarding the valuation, the brokerage firm said: “The Rs 180 target for May 23rd is based on the two stage DDM model. This implies a multiple of around 1.6x P/BV and d ‘about 1.7x P/ABV on its FY23e pound.’ Risk factors included higher slippages and lower than expected loan growth. Risks: Larger slippages, lower than expected loan growth.

4. About City Union Bank

4. About City Union Bank

The bank was incorporated as a limited liability company on October 31, 1904. Previously, it was known as Kumbakonam Bank Limited. It celebrated its golden jubilee on November 14, 1954 in Kumbakonam. It has obtained a license from the Insurance Regulatory Authority of India (IRDA) to act as a corporate agent for the sale of insurance products and to offer value added services to the general public. It has signed a Memorandum of Understanding with Life Insurance Corporation of India and National Insurance Company Limited for the sale of their insurance products. The market capitalization of CUB registered us at Rs 10,361 crore.

5. Disclaimer

5. Disclaimer

The stock was picked from Anand Rathi’s brokerage report. Greynium Information Technologies, the author, and the 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.