Brokerage Maintains Buy Rating To This Small Cap Bank Stock, Sees 23% Potential Gains

ICICI Direct has recently published a report in CSB Bank, where they called to buy the stocks of the company for a target price of Rs 250 apiece. CSB Bank is a south-based private sector bank with Kerala contributing ~48% of total business. Changing strategy in various aspects of lending has led to transformation and improved performance in the past few years. Gold, and SME key lending segments comprise 42%, and 14%, respectively, of books. The liability franchise is healthy with a loyal customer base of ~21 lakh.

Stock Outlook

The CSB Bank Ltd.'s current market price (CMP) is Rs. 204.40 apiece, after closing on Friday, declined 2.45% from the previous close. The last close, on Thursday, was Rs 210.05 apiece. The stock's 52-week low was recorded last month at Rs 178 apiece, and its 52-week high was recorded last year on July 23 at Rs 357 apiece. The stock's CMP is Rs 26.40 above its 52-week low recorded on 21 June 2022.

The PE ratio of the stock is 7.73, while the sector PE ratio is 22.80. The PB ratio is 1.43. ROE is 17.29%. EPS is Rs 26.43. Its face value is Rs 10. It is a small-cap banking stock with a Market Capitalization of Rs 3,546 crore.

CSB Bank got listed on the exchange in December 2019. Since its listing, it has delivered a negative return of 31.88%. Last week its share price moved up by 2.28% and 8.81% in the last 1 month, respectively. Over the 3 months, its share price declined 7.07%. In the last 1 year, its share witnessed a major slide down in its price by almost 36.69%.

As the brokerage recommends buying the stocks of the company for a target price of Rs 250 apiece, considering this, if an investor buys the stocks of the company at CMP, they can expect a a potential gain of 23% in 12 months.

Q1FY23 Results

Gold loan picks up; lower provision boost earnings.

• NII up 16% YoY and 2.3% QoQ, NIM down 25 bps at 5.2%, up 13 bps YoY.
• C/I at 58% QoQ, overall provisions at Rs 1.7 crore boosted PAT at Rs114.5 crore.
• GNPA down 2 bps QoQ to 1.79%, NNPA down 8 bps QoQ to 0.60%.

Brokerage Recommends buy for a target price of Rs 250 apiece

CSB Bank has given almost flattish returns in past two years post initial run-up, as of concerns over stress formation in SME & gold loans emerged.

The brokerage said, "The management is aiming to boost growth, liabilities accumulation and opex control which should help boost profitability. We retain our BUY rating on the stock. We value CSB Bank at ~1.3x FY24E ABV with a revised target price of Rs 250 vs. Rs 270 earlier."

Key triggers for future price performance

According to the brokerage the key triggers for future performance are:

• Product launches and focus on gold business to aid growth; sanity returning in the gold finance industry to aid margins.
• Investment in branches, employees and technology to keep opex elevated, though benefit to accrue gradually in 12-18 months.
• Enhanced cross sell and regain in PSLC income to boost other income. Base effect of provision write back getting over to keep RoA at 1.5-1.6%.
• Improving mix of non-gold lending segment in medium term to bring diversification.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective 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 decision.