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Core interest income in-line with expectations, higher growth in other
income and lesser tax provisioning led to higher than expected bottomline
In Q3 FY12, City Union Bank’s (CUB) NII grew 17.3% YoY to ` 1.2bn — in
line with our estimates. However, NIM fell to 3.24% from 3.48% in Q3 FY11
and 3.41% in Q2 FY12.
Operating expenses rose 34% to ` 686mn, whereas other income grew
40% to ` 508mn from ` 363mn in Q3FY11, resulting in a 17% YoY jump in
operating profit to ` 1.05bn (Dolat est: ` 1.01bn).
CUB reported a bottom-line of ` 722mn compared to our estimates of `
628mn and consensus estimate of ` 677mn. Sharp decline of 67% YoY in
tax expenses to ` 71mn from ` 215mn aided bottom-line growth.
During the quarter, gross NPA ratios largely remained stable at 1.17% on
sequential basis. Provision coverage ratio decreased to 76% from 79% in
Q2 FY12. Overall, asset quality remains firm, though the bank made lesser
NPA provisions.
We see business growing 28% CAGR in FY11-13. We factor in margin
compression of 25bps in FY12 as well as FY13 to 3.07% and 2.82%
respectively (yearly average). We estimate that CUB will report RoAA of
1.3-1.6% and RoAE of 19-24%.
We increase our FY12 earnings estimates by 6% due to better asset quality;
however, we maintain our FY13 earnings estimates and target price at ` 53
at 1.5x adjusted book value FY13. We reiterate our Buy rating on the stock
with a potential 23% upside. At current market price, it trades 1.2x FY13
(ABV) respectively.
Strong business growth: In Q3 FY12, City Union Bank’s (CUB) total business
grew 29% YoY to ` 264bn. Deposits and gross advances grew 28.7% and 29.5% to
` 154bn and ` 110bn respectively. Credit-deposit ratio slightly increased to 71.5%
from 71.1% in Q3 FY11. On the deposits side, the CASA share declined to 16.8%
from 18.64% in Q3 FY11 and 17.9% in Q2 FY12 account of a sharp rise in term
deposits (up 32% YoY) as compared to only 16% growth in CASA deposits.
On the credit book side, trading & MSME loans, which earn higher yields, constitute
over 50% of the credit book. CUB’s major industry exposure is to textile and iron &
steel industries.
The management expects 25-28% growth in FY12; we expect business to expand
28% CAGR in FY11-13. We also expect CUB’s credit book and deposits to grow
28.7% and 27.6% CAGR respectively in FY11-13. On the credit book front, growth
will mainly come from the MSME and agriculture sectors. Rapid branch expansion
and entry into new geographies will aid low-cost deposit mobilization.
Slight strain on margin: A sharp rise in term deposit mobilisation resulted into
11-bps sequential increase in cost of deposits; further 11-bps decline in yield on
advances impacted margins. Difficulty in passing on the higher liabilities cost led
to 17-bps QoQ decline in NIM to 3.24% from 3.41% in Q2 FY12.
Operating expenses led by branch expansion: In Q3 FY12, the bank added 2
branches and 27 ATMs, taking the total branch network to 286 branches and 378
ATMs. This resulted in slight higher operating overheads.
The cost-income ratio increase to 39.5% from 36.2% in Q3 FY11 and fell from
40.1% in Q2 FY12. On the back of better operating efficiencies in place, we expect
CUB’s C-I ratio to remain in the range of 41-44%.
Better asset quality on sequential basis: During the quarter, CUB’s gross NPAs
rose 18% YoY and 4% QoQ to ` 1.3bn. Gross NPA ratios sequentially remained
stable at 1.17%. Net NPA ratio increased to 0.51% from 0.42% in Q2 FY12. The
net and gross NPA ratios declined YoY by 2bps and 11bps respectively. Provision
coverage ratio decreased to 76% from 79% in Q2 FY12. Overall, asset quality
remains firm, though the bank made lesser NPA provisions.
On the restructured loan book front, at the end of Q3 FY12, total outstanding stood
at ` 2.8bn. Almost 88% of the restructured loan book completed one year of principal
repayment after the moratorium. Most of CUB’s credit books were secured by
collaterals, adding buffer to asset quality.
Valuation
We increase our FY12 earnings estimates by 6% due to better asset quality;
however, we maintain our FY13 earnings estimates and target price at ` 53 at 1.5x
adjusted book value FY13. We reiterate our Buy rating on the stock with a potential
23% upside. At current market price, it trades 1.2x FY13 (ABV) respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Core interest income in-line with expectations, higher growth in other
income and lesser tax provisioning led to higher than expected bottomline
In Q3 FY12, City Union Bank’s (CUB) NII grew 17.3% YoY to ` 1.2bn — in
line with our estimates. However, NIM fell to 3.24% from 3.48% in Q3 FY11
and 3.41% in Q2 FY12.
Operating expenses rose 34% to ` 686mn, whereas other income grew
40% to ` 508mn from ` 363mn in Q3FY11, resulting in a 17% YoY jump in
operating profit to ` 1.05bn (Dolat est: ` 1.01bn).
CUB reported a bottom-line of ` 722mn compared to our estimates of `
628mn and consensus estimate of ` 677mn. Sharp decline of 67% YoY in
tax expenses to ` 71mn from ` 215mn aided bottom-line growth.
During the quarter, gross NPA ratios largely remained stable at 1.17% on
sequential basis. Provision coverage ratio decreased to 76% from 79% in
Q2 FY12. Overall, asset quality remains firm, though the bank made lesser
NPA provisions.
We see business growing 28% CAGR in FY11-13. We factor in margin
compression of 25bps in FY12 as well as FY13 to 3.07% and 2.82%
respectively (yearly average). We estimate that CUB will report RoAA of
1.3-1.6% and RoAE of 19-24%.
We increase our FY12 earnings estimates by 6% due to better asset quality;
however, we maintain our FY13 earnings estimates and target price at ` 53
at 1.5x adjusted book value FY13. We reiterate our Buy rating on the stock
with a potential 23% upside. At current market price, it trades 1.2x FY13
(ABV) respectively.
Strong business growth: In Q3 FY12, City Union Bank’s (CUB) total business
grew 29% YoY to ` 264bn. Deposits and gross advances grew 28.7% and 29.5% to
` 154bn and ` 110bn respectively. Credit-deposit ratio slightly increased to 71.5%
from 71.1% in Q3 FY11. On the deposits side, the CASA share declined to 16.8%
from 18.64% in Q3 FY11 and 17.9% in Q2 FY12 account of a sharp rise in term
deposits (up 32% YoY) as compared to only 16% growth in CASA deposits.
On the credit book side, trading & MSME loans, which earn higher yields, constitute
over 50% of the credit book. CUB’s major industry exposure is to textile and iron &
steel industries.
The management expects 25-28% growth in FY12; we expect business to expand
28% CAGR in FY11-13. We also expect CUB’s credit book and deposits to grow
28.7% and 27.6% CAGR respectively in FY11-13. On the credit book front, growth
will mainly come from the MSME and agriculture sectors. Rapid branch expansion
and entry into new geographies will aid low-cost deposit mobilization.
Slight strain on margin: A sharp rise in term deposit mobilisation resulted into
11-bps sequential increase in cost of deposits; further 11-bps decline in yield on
advances impacted margins. Difficulty in passing on the higher liabilities cost led
to 17-bps QoQ decline in NIM to 3.24% from 3.41% in Q2 FY12.
Operating expenses led by branch expansion: In Q3 FY12, the bank added 2
branches and 27 ATMs, taking the total branch network to 286 branches and 378
ATMs. This resulted in slight higher operating overheads.
The cost-income ratio increase to 39.5% from 36.2% in Q3 FY11 and fell from
40.1% in Q2 FY12. On the back of better operating efficiencies in place, we expect
CUB’s C-I ratio to remain in the range of 41-44%.
Better asset quality on sequential basis: During the quarter, CUB’s gross NPAs
rose 18% YoY and 4% QoQ to ` 1.3bn. Gross NPA ratios sequentially remained
stable at 1.17%. Net NPA ratio increased to 0.51% from 0.42% in Q2 FY12. The
net and gross NPA ratios declined YoY by 2bps and 11bps respectively. Provision
coverage ratio decreased to 76% from 79% in Q2 FY12. Overall, asset quality
remains firm, though the bank made lesser NPA provisions.
On the restructured loan book front, at the end of Q3 FY12, total outstanding stood
at ` 2.8bn. Almost 88% of the restructured loan book completed one year of principal
repayment after the moratorium. Most of CUB’s credit books were secured by
collaterals, adding buffer to asset quality.
Valuation
We increase our FY12 earnings estimates by 6% due to better asset quality;
however, we maintain our FY13 earnings estimates and target price at ` 53 at 1.5x
adjusted book value FY13. We reiterate our Buy rating on the stock with a potential
23% upside. At current market price, it trades 1.2x FY13 (ABV) respectively.
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