Prabhudas Lilladher's research report on City Union Bank
We cut our FY24/25E earnings by 8%/10% mainly due to rise in provision costs from 105bps to 127bps, since target is to keep PCR at 50% (now 43%). City Union Bank (CUBK) reported PAT of Rs2.2bn (missed PLe by 10%) led by weaker NIM, loan growth and asset quality. NIM was hit by Rs320mn, due to non-recognition of interest subvention (owing to a procedural lapse likely to regularise in Q4). Bank has turned cautious and lowered its previous FY23 loan growth guidance from 15-18%, due to delay in investment cycle. Hence we trim our FY22-25E credit CAGR from 15.0% to 12.4%. GNPA was more (up 29bps QoQ to 4.63%) due to higher slippage ratio, but would normalise to pre-covid levels in FY24E.
Outlook
We reduce our multiple from 2.0x to 1.8x Sep’24 ABV, due to earnings cut and better core performance of peers. While we lower TP to Rs190 from Rs220, we retain ‘BUY’ rating as RoA of 1.5% is achievable in FY23/24/25E.
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