City Union Bank Ltd. - Q3FY14 Update, CMP Rs.48, Maintain BUY with Target of Rs.58 - Sushil Finance

CITY UNION BANK LTD. (CUB) - Q3FY14 RESULT UPDATE - CMP Rs.48, Maintain BUY with Target of Rs.58

City Union Bank Ltd. (CUB) has reported decent set of numbers for the quarter ended December'13 with higher focus on asset quality. We attended the conference call of the company and following are the key highlights of the results.

Key Highlights of Q3FY14 results

- NII grew by 21% YoY & 4% QoQ on back of modest advances growth & improvement in NIM's which improved by 10 bps to 3.6% (QoQ 3.5%). Core Fee Income grew by 4% YoY to Rs.453 mn. Ongoing branch expansion coupled with one-time ex-gratia payments to employees (~Rs.100-120 mn in Q3) led to sharp rise in operating expenses (higher 30% YoY & 15% QoQ) which led to lower PAT growth of ~5% YoY. C/I increased to 48% v/s 44% in Q2 on back of moderate advances growth & higher operating expenses, however management expects C/I to improve going ahead.

- Advances & Deposits grew by 9% & 11% YoY while both were flat sequentially. Moderate advances growth was on account of conscious management decision to focus on profitable growth instead of aggressive credit growth. CASA improved marginally to 17.5% v/s 16.8% QoQ. Bulk Deposit remains at ~5-6% of the total deposits.

- Asset quality remained stable with GNPA & NNPA at 1.7% (Q2 1.66%) & 0.89% (Q2 0.83%) resp. Slippages came in lower at 0.57% (Rs.907 mn) v/s 0.96% QoQ (Rs.1500 mn) which includes one major account of ~Rs.400 mn from Steel segment. CUB has been focusing more on recovery with recovery rate of ~75-80%. It was successful in recovering ~Rs.400-450 mn from an account which slipped into NPA last quarter while remaining amount expected to be recovered by March'14 (~Rs.600-800 mn). Restructured book as % of advances stood at 1.9% v/s 1.4% in Q2 while PCR stood at 70%.

- Management Guidance: 1) Advances to grow at ~12-14% in FY14 with more focus on profitability 2) NIM's to remain stable at ~3.5-3.6% over the next 2-3 quarters 3) C/I likely to be ~45% over the long run 4) Branch expansion to continue with ~100 branches to be added by FY15E taking the total to ~500 branches 5) Asset quality likely to remain stable with no restructured pipeline 6) Tax Rate likely to be ~20-21% in FY14E.

OUTLOOK & VALUATION

Despite of the gloom economic scenario, CUB has reported decent set of numbers in Q3FY14 with major focus on profitable growth rather than aggressive credit growth. Moderate advances growth, lower core-fee income along with higher operating expenses did impact the profitability marginally in the current quarter. However with gradual economic recovery, we expect advances growth to be back on track going ahead. In our view, management stance of focusing on quality growth & maintaining healthy margins is likely to auger well for the bank in better times. Hence, considering the strong fundamentals & growth prospects over the long run, we maintain 'BUY' on the stock with a price target of Rs.58.

Source : Equity Bulls

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