Buy City Union Bank, target price Rs 222: HDFC Securities

HDFC Securities has buy call on City Union Bank with a target price of Rs 222. The current market price of City Union Bank is Rs 172.1. Time period given by analyst is one year when City Union Bank Ltd. price can reach defined target.

City Union Bank Ltd., incorporated in the year 1904, is a banking company (having a market cap of Rs 12040.44 Crore).

City Union Bank Ltd. key Products/Revenue Segments include Interest & Discount on Advances & Bills, Income From Investment, Interest On Balances with RBI and Other Inter-Bank Funds and Interest for the year ending 31-Mar-2022.


Financials
For the quarter ended 30-06-2022, the company reported a Standalone Total Income of Rs 1316.98 Crore, up 5.12 % from last quarter Total Income of Rs 1252.87 Crore and up 10.38 % from last year same quarter Total Income of Rs 1193.08 Crore. The bank reported net profit after tax of Rs 225.14 Crore in latest quarter.

Investment Rationale
City Union Bank’s (CUBK) Q1FY23 earnings beat estimates on the back of higher recoveries from written-off accounts, lack of treasury drag, and lower-than-expected credit costs (1.6% annualised). Slippages were relatively higher (~2.9%), partly offset by recoveries/upgrades, driving GNPA to 4.7%. The total stress pool (NNPA + restructured + SR + SMA-2) remains sticky at ~10%. The management remains confident of higher momentum in recoveries resulting in lower credit costs and guided for 15-18% credit growth on the back of a favourable economic environment. Having clocked an RoA of 1.46% during Q1FY23, CUBK remains on track to achieve its targeted 1.5% RoA for the full year. It raises FY23/24E earnings by 2%/4% to factor in better loan growth.

Promoter/FII Holdings
Promoters held 0 per cent stake in the company as of 30-Jun-2022, while FIIs owned 18.16 per cent, DIIs 41.65 per cent.