Emkay Global Financial's research report on City Union Bank
CUBK reported a strong 26% beat on PAT at Rs2.8bn (up 23% YoY) and its best-ever RoA of 1.7% (reported) in Q2. This was mainly led by sharp improvement in margins (up 14bps QoQ to 4.1%) and lower LLP, as NPAs continue to trend down. Bank expects profitability to remain strong in H2 on the back of better growth and continued moderation in NPAs. Overall credit growth was modest at 13% YoY/4% QoQ, mainly due to sluggish corporate growth (down 5% QoQ). However, the bank expects growth to see further improvement in H2 which should be led by SME/corporate growth acceleration. That said, we believe deposit growth will need to catch up too and thus lead to slight moderation in margins. Fresh NPAs remain elevated at Rs2.6bn/2.8% of loans, but higher recovery/w-off led to 29bps QoQ declinein GNPA, to 4.4%. Spice Jet (o/s at Rs825mn) has started settlement of dues in a phased manner and the last installment will be paid in Jun-23. The bank carries 100% provision on this and should thus see gradual reversal.
Outlook
We expect the bank to claw back its highest RoA/RoE so far, of 1.6%/15%, aided by accelerating growth, healthy margins and lower LLP. We retain BUY with revised TP of Rs228/share (Rs200 earlier), based on 2x Sep-24E ABV.
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