Buy This Banking Stock For 28% Upside As Suggested By Edelweiss

Edelweiss Broking Limited has a buy call on the stock of City Union Bank Ltd with a target price of Rs 210. The stocks current market price is Rs 164, and brokerage forecasts a 28 percent upside. City Union Bank (CUB) is one of the emerging small-sized private sector banks which has its Core Banking Services with a network of 702 branches and 1,720 ATMs as of 30th September 2021. According to the brokerage The bank reported 6% YoY/QoQ growth in net revenue, mainly driven by 20/4% YoY/QoQ growth in non-interest income and sequential improvement in margin. NIM (calc.) came in at 3.6% (v/s. 3.9%/3.5% in Q2FY21/Q1FY22 respectively). Overall operating expenses increased ~6% YoY/QoQ, resulting in 5/6% YoY/QoQ growth in PPoP. Credit cost came in at 1.6% v/s our estimate of 1.8%. Thus, PAT came in at INR 1.8bn. In its research report, Edelweiss has reported that the banks Advances grew 7% YoY to INR371bn, largely driven by agri. gold loans. Overall gold loans grew by 73% YoY (mix: 21%, v/s 13% in Q2FY21, with an LTV of 69%). Agri. gold loans grew 94% YoY (constituting 57% of the total gold loan portfolio). MSME book grew 15% YoY (mix: 38% v/s 35% in Q2FY21). Retail/Corporate loans declined 1/15% YoY. Deposits grew ~12% YoY, led by CASA growth of 26% YoY. This led to 326/131bps YoY/QoQ jump in CASA ratio to 29%. Edelweiss has said City Union Bank reported slippages of INR 2.97bn v/s 4.8bn in Q1FY22 (3.4% annualised run-rate). Given the product mix, we believe slippages were well within control. Recoveries & upgradations were ~INR 1.3bn and w/o was INR 0.9bn (v/s 2.6bn in Q1FY22), resulting into 1bps QoQ improvement in GNPA/NNPA to 5.6/3.5% respectively. The overall restructured book stood at ~INR 22.5bn (5.9% of gross advances v/s 5.5% in Q1FY22). The brokerage has further clarified that The bank holds ~INR 1.7bn provision against restructured book. Management expects overall slippages in FY22 to be lower than FY21 and hence slippages in H2FY22 are expected to moderate. SMA-2 book is 2.8%, v/s 3.2% in Q1FY22 (pre-Covid SMA book used to be 5-7% of gross advances), and SMA-1 book is also moderating. Including technical write-offs, PCR stood at 62%, declining 1% sequentially.Advertisement The brokerage claims that City Union Banks (CUB) Q2FY22 results were better than our estimates on operational fronts, largely due to healthy non-interest income and lower credit and operating cost v/s our estimates. Balance sheet growth was broadly in-line and asset quality largely remained stable, which was better than what we anticipated considering the nature of the loan book. Edelweiss has noted in its research report that Credit growth and RoA target maintained with an improvement in asset quality. Given the banks strong underwriting skills, consistent return ratios, and adequate liquidity, we remain positive on CUB. Based on 2.2x FY23E ABV, we arrive at a target price of INR210/share; maintain BUY with an upside of 28%. This stock is picked from the brokerage report of Edelweiss Broking Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. 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.