This Smallcap Stock Gave 48.56% Return In 3 Months, Geojit Rated Accumulate With Rs 209 Target Price

Geojit has recently published a retail equity reserch report on City Union bank Ltd, where the brokerage rated the bank 'Accumulate' with Rs 209/share target price. City Union Bank is a small cap banking company having a market cap of Rs 13,904.20 crore. City Union Bank Ltd (CUB), the oldest private sector bank in India, is a mid-sized commercial bank headquartered in Tamil Nadu, having a network of 727 branches spread across the country and a loan book size of Rs.40,934 cr.

Stock Outlook

The Current Market Price (CMP) of the stock is Rs 188/share. The 52-week low level of the stock is Rs 109/share and the 52 week high level is Rs 191.95/share, respectively. Stock is trading near its 52 week high level. The stock is likely to gain 12% in 12 months if purchased at the current market price, according to the brokerage's estimated target price.

Returns on Investment

The stock of the company in the past 1 week, gave nearly 6.91%. It has given 15.91% in the past 1 month and 48.56% in the past 3 months, respectively. Whereas, over the past 1 year, the stock gave a 30.06% positive return. However, over the past 3 years, the stock slid roughly 0.82%. It has given nearly 27.5% positive return over the past 5 years.

Advances growth led by Gold portfolio

In Q1FY23, bank's total business grew by 11% YoY with deposits growing at 9% YoY and 2% sequentially while advances grew 12% YoY while it marginally degree on a sequential basis. High-yield working capital loan constitutes 62% of the advances while term loan contributes 37%. The growth in advances were driven by gold loan which grew by 37% YoY and constitutes 23% of gross advances. Total Gold loan outstanding as on Q1FY23 stands at Rs.9,494.4cr against Rs.6,906.0cr an year ago and Rs.9,003.3cr during previous quarter. On the deposit front, CASA grew by 25% YoY as savings deposit grew by 20% YoY and demand deposit by 39%. CASA ratio of the bank stood at 31.5% compared to 32.6% during the previous quarter. Sequential decline in CASA mix was due to 1.5% decline in savings deposit. Management expect advances to growth at 15- 18% during FY23. Capital Adequacy Ratio of the bank stands comfortable at 20.5% compared to 20.9% in Q4FY22. 

Net Interest Income grew by 17.3% YoY and 4.8% QoQ

Net Interest Income (NII) for the quarter grew by 17.3% YoY and 4.8% QoQ as interest income witnessed a growth of 10.2% YoY and 4.7% QoQ and interest expense grew by 4.5% YoY and 4.6% QoQ. Net Interest Margin showed a sequential decline of 6bps to 3.95%. Cost of deposit declined by 11bps sequentially and 52bps YoY to 4.43% while yield on advances declined 22bps sequentially and 36bps YoY to 9.04%. Decline in yield despite rate hike was partly due to lag effect and because of increasing mix of gold loan which has lower yield compared to the average yield of the bank. 65% of the advances of the bank are EBLR linked while 25% are MCLR linked while only 10% of the advances are fixed in nature. Pressure of increasing bond yield was seen in treasury income as it declined 80% YoY to 20.9cr. Pre-provision profit of the bank grew by 16.7% YoY and 1.7% sequentially. Bank reported PAT of Rs.225.0cr registering a growth of 30.0% YoY and 7.7% QoQ. Bank's PCR stood at a comfortable 64% in line with Q4FY22. 

Marginal improvement in asset quality

GNPA/NNPA for the quarter improved marginally to 4.65%/2.84% against 4.70%/2.89% during Q4FY22. Annualised slippage ratio stood at 2.6% compared to 3.1% in FY22. Total restructured book as a percentage of gross advances stood at 5.0% amounting to Rs.2033.7cr during the quarter. We anticipate gradual recovery in asset quality with GNPA at 4.0% by end of FY23. 

Outlook and valuation

Bank has shown a decent performance during the quarter. Management has increased their FY23 loan growth guidance to 15-18%. "We expect ROE/ROA to improve to 13.7%/1.6% by FY24. With improved growth outlook, we upgrade our valuation to 2.1x FY24E Adj BVPS and recommend Accumulate rating with a target price of Rs.209," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Geojit. 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 making any investment decision.