This small-cap bank stock had a strong first quarter overall, the brokerage suggests buying for 19% gains


Outlook and stock returns

The current market price (CMP) of Finilex Industries Ltd on NSE is Rs 132.95 each. Today the stock opened at Rs 131.60 each, the previous close was at Rs 131.35 each. It recorded the 52-week low at Rs 125 each recorded on May 10, 2022, and the 52-week high at Rs 244.50 each was recorded on October 25, 2021.

Over the past week, it has gained 7.04% and 20.12% over the past month, respectively. Over the past 3 months, shares have jumped 43.15%. Over the past 1 year, shares have fallen nearly 13.65%. Over the past 3 years, stocks have returned negative 11.02%. Over the past 5 years, the stock has gained 22.03%.

The stock’s ROE is 11.54%. TTM EPS is Rs 10.28. Report TTM PE 17.03. The P/B ratio is 1.97. The dividend yield is 0.57% and the face value is Rs 1, respectively. It is a small cap bank stock having a target price of Rs 12,942 crore.

Credit growth was subdued in the quarter, but forecasts are encouraging

Credit growth was subdued in the quarter, but forecasts are encouraging

Advances increased by 12% YoY and 1% QoQ to Rs 40,934 cr. In Q4FY22, management guided credit growth in the low to mid-teens for FY23. However, this was increased to 15-18% despite a slow start to exercise. The share of gold loans in total advances continued to increase, now reaching ~23% of gross advances (from 19% in Q1FY22). After declining in the first quarter of FY22, the bank’s MSME portfolio has since performed well, particularly in the past two quarters. Growth in this segment was 26% year-on-year and 9% quarter-on-quarter. MSMEs are the bank’s target segment, and we expect them to be a key growth driver in FY23 and beyond, particularly on the improved pricing scenario. We also believe this will result in improved performance for City Union Bank. City Union Bank’s deposits were up 9% year-on-year and 2% quarter-on-quarter, driven by a massive 25% increase in CASA deposits. This led to a 390 basis point YoY rise in the CASA ratio to ~31.6% and resulted in a significant moderation in the CoF over the period

The stressed book, although very quantum, is managed effectively

The stressed book, although very quantum, is managed effectively

City Union Bank reported slippages of Rs 270cr or ~2.7% of overall advances. Against these, the bank had recoveries and upgrades of Rs 160cr and took write-offs to the tune of Rs 140cr. As a result, the GNPA and NNPA fell 5bps and 6bps QoQ to 4.65% and 2.89%, respectively. PCR (calculated) improved from 62 bps QoQ to ~37.9%. The restructured book stood at Rs 2,034cr or 5.0% of gross advances (improvement from 5.4% in Q4FY22). ~42% of the restructured book is still in moratorium. However, borrowers whose exposures amount to around 86% of the restructured portfolio still in moratorium have already started making voluntary repayments. Thus, only exposures restructured up to Rs 120cr have not yet started repayments. “As the bank holds provisions worth Rs 156cr against the restructured book, we believe that the overall result of this book should not pose significant challenges above the FY22 level,” said the brokerage firm.

Outlook and valuation

Outlook and valuation

Edelweiss Wealth Research said: “We have previously highlighted that the bank’s focus on growth should return due to signs of stress easing. We are now seeing this happening as the bank appears well equipped against stress. , and management has raised its guidance on credit growth. We expect operating expenses to increase as the bank enters expansion mode. However, yield ratios have improved QoQ, and we expect them to remain strong thanks to a healthy NIM and the moderation in the cost of credit We remain positive on City Union Bank and reaffirm our BUY call with a revised target price of Rs 205 per share, implying up 26% We raised our target price due to strong growth expectations, potential NIM improvement and lower expected slippages.

About - City Union Bank Limited

About – City Union Bank Limited

City Union Bank Ltd is one of the leading private sector regular commercial banks with a major presence in the semi-urban and rural urban centers of South India. The Bank operates in four segments, namely Treasury, Retail Banking, Corporate Banking and Other Banking. Their products include Savings Accounts, Checking Accounts, Time Deposits, Cash Certificates, VIP Deposits, Flexifix Deposits, CUB Smart Deposits and Tax Saving Gold Deposit Accounts. The Bank’s services include automated teller machine (ATM) services, mail transfer requests, draft telephone transfer standing instructions and an appointment function. The main objective of the bank is to lend to MSMEs Retail/Wholesale with a granular asset profile, including the provision of short and long term loans to the agricultural sector. The bank has a strong presence in South India.


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