Edelweiss Research Suggest Buy This Banking Stock For Robust 90% Returns, Stock Hit 52 Week Low

CMP, Target Price, Stock Performance & Returns

Today the shares of the CSB Bank closed at the Current Market Price (CMP) of Rs 179.60 per share. As mentioned, the shares of the bank is has hit the 52-week low at Rs 179.60 today, 17 June 2022. The CMP is just Rs 1.10 above the 52-week low. It touched the 52-week high of Rs 374 on 5 July 2021.

The P/E ratio is 6.80, while the sector P/E ratio is 20.79. ROE is 17.29%. The capital Adequacy Ratio is 25.90%. The market capitalisation is Rs 3,115.81 Crore.

Stock in last 1 year has fallen nearly 43.07%. It gave negative returns of 3.57% in the last 1 week, 6.14% in the last 1 month, and 18.86% in the last 3 months. The fall in share price continues to now where it hit the 52-week low.

 

Long-term target of 1.5x of industry growth

The management is targeting to grow the asset book at 1.5x of industry growth. It has projected banking credit growth of 14-16% for the next three years, with GDP growth projection of 7-8%. MSME growth and return of corporate growth in the next 2-3 quarters are likely to boost credit growth in the near term. The management believes that Services, Consumption, EPC, Housing, CV&CE and Infrastructure will drive growth in the advances book. In addition, the management is expecting the corporate borrowing book to shift from overseas to the domestic banking system as the overseas borrowing rate is inching up.

The management is internally targeting 20%+ credit growth for the next three years, but this will accelerate after FY27 as the bank will have robust technology in place and a strong liability franchise to support the credit growth. Moreover, the management is planning to get into the credit card business through a partnership and introduce more retail products in due course. In the short term, the gold loan book will remain the growth driver for the bank. In the long term, however, the bank's book will be more diversified. The share of gold loans will reduce from the current 40% to 25%; the retail book will represent 25%, SME will account for 20-22% and the corporate book will constitute the rest. In terms of inorganic growth, the management believes it may be worthwhile to acquire a portfolio or a specific book in order to complement the organic growth as planned.

Renewed focus to boost fee income through increased cross-selling and customer acquisition

The bank seeks to enter into robust partnerships that would help generate a sustainable stream of fee income. At present, the bank has about 1.5mn customers; of this, two-third of the base is not adding value on the wealth-income front. In addition, CSB intends to acquire quality customers through multiple tie-ups, which would result in increased cross-selling opportunities.

Investments to keep opex elevated in near term

Investments in technology are likely to remain high for the next few quarters. This, coupled with aggressive branch opening and hiring (employee count is expected to almost double over the next 2-3 years), is expected to keep operating expenditure elevated in the near term.

Buy for a target price of Rs 340/share

Edelweiss research said, "At Current Market Price, the stock is trading at 0.9x FY24E ABV. The bank has industry-leading margins, strong return ratios and robust asset quality. With anticipated credit growth of nearly 20% during FY22-24E, we expect a rerating. As such, we maintain our 'BUY' recommendation with a target price of Rs340/share, implying an 89% upside "

Company Overview- CSB Bank Ltd

Established in 1920 as The Catholic Syrian Bank Limited, CSB Bank Limited had its modest beginning in November 1920 and is currently the oldest private sector bank in Kerala. During this century-long period, the Bank has grown from strength to strength, adapting admirably to the far-reaching social, political and economic changes that have taken place during the period.

In 1969, the Bank became a Scheduled Bank, as it was included in the Second Schedule of the Reserve Bank of India (RBI) Act. In 1972 it opened its first branch in Chembur, Mumbai. "A Class" Scheduled Bank status was attained by the Banking the year 1975 and it entered the field of International Banking in the same year. Currently, the bank has 609 branches (comprising 3 service branches and 3 asset recovery branches) and 468 ATMs (including onsite and Offsite) spread across 18 states, and 2 union territories. Out of the 603 branches (excluding 3 service branches and 3 asset recovery branches). The Bank has organized all its branches under 10 Zonal offices.