Anand Rathi Bets On City Union Bank, Gives A Buy Call For Up To 29% Gain

Leading brokerage firm Anand Rathi has given a buy call to the stock of City Union Bank (CUB) for a possible gain of 28.57 on the back of strong earnings outlook and business getting back on track. The brokerage firm has set the target price of Rs 180 and the current market price of the stock is 140.10. The shares of City Union Bank touched a 52-week high of 183.65 and the 52-week low of 108.60.

The shares of City Union Bank has declined from the 52-week high og Rs 183.65 to the current market price of Rs 140.10. The decline in the price of the share makes it an attractive one to buy at the current level. Today the prices of share witnessed a gain of 1.08% to close the day at 140.10. The stock of City Union Bank has touched the upper price band of 154 and the lower price band was 126.10.

1. City Union Bank's registered strong earnings

According to Anand Rathi, City Union Bank registered strong earnings growth. CUB's Return on Asset (RoA) at 1.42% recorded its highest after Q3 FY 2020. The key positives for the quarter emerged the pick up in loan growth, moderation in slippage run-rate, stable margins, strong liquidity and capitalization. The brokerage firm expects the slippages to ease further and earnings to improve. On the basis of these grounds, the brokerage firm has given a buy call with the TP of 180 (earlier Target Price was 170).

2. Slippages of City Union Bank

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

3. Earnings and valuation of City Union Bank

The brokerage firm commented on the earning and valuation. According to it the earnings are expected to remain strong as it said, "With a pick-up in business growth and the rising interest-rate scenario, margins should increase from current levels. Higher business growth and a better operating performance would aid CUB in reaching 1.5% RoA levels in H2 FY23." When it comes to valuation, the brokerage firm said, "May'23 target of Rs.180 is based on the two-stage DDM model. This implies a ~1.6x P/BV an d ~1.7x P/ABV multiple on its FY23e book." The risk factors included the higher slippages and lower than expected loan growth. Risks: Higher slippages, lower-than-expected loan growth.

4. About City Union Bank

The bank was incorporated as a limited company on October 31, 1904. Earlier it was known as The Kumbakonam Bank Limited. It celebrated its Golden Jubilee on November 14, 1954 at Kumbakonam. It secured license from Insurance Regulatory Authority of India (IRDA) to act as Corporate Agent for selling insurance products and to offer value added services to the public at large. It inked an MoU with Life Insurance Corporation of India and National Insurance Company Limited for selling their insurance products. The Market capitalization of CUB us recorded at Rs 10,361 crore.

5. Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.