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Core interest income, operating profit & bottom-line ahead of
expectations
Strong business growth continues with rebound in better liability side
management
Further improvement in asset quality and stable margin improves overall
quality of result
We reiterate our positive stance on the stock with a target price of ` 70
In Q4 FY12, City Union Bank’s (CUB) NII grew 14.7% YoY to ` 1.4bn — 7.8%
higher than our estimates. NIM fell to 3.39% from 3.79% in Q4 FY11 and rose
from 3.24% in Q3 FY12. Higher rise in yield on funds (37bps QoQ) as against
cost of funds (20bps QoQ) aided margin (on sequential basis) and core interest
income.
Other income grew 36% to ` 612mn from Rs 450mn in Q4FY11 (primarily, on
account of 115% YoY jump in treasury income and 135% YoY rise in forex
gains). Hence higher core interest income and non-fund income resulted in
higher than expected 17% YoY jump in operating profit to ` 1.14bn (Dolat est:
` 1.0bn).
Decline of 18% YoY in total provisions (excluding tax expenses) to ` 295mn &
53% YoY decrease in NPL provisioning to ` 193mn further aided bottom-line
growth. It reported a bottom-line of ` 720mn compared to our estimates of `
559mn and consensus estimate of ` 615mn.
During the quarter, asset quality improved with net NPA ratio declining by 7bps
QoQ & 8bps YoY to 0.44% and gross NPA ratios declining by 16bps QoQ & 20bps
YoY to 1.01%. Provision coverage ratio remains stagnant at 77%. CUB’s gross
slippage ratio decreased to 1.17% from 2.2% in Q3 FY12 and 2.68% in Q4 FY11.
The total outstanding restructured loan book at the end of Q4 FY12 stood at Rs
2.7bn (slight decline from ` 2.8bn as on Q3 FY12). During this quarter, the bank
has not restructured any accounts.
In FY13, in our view, the bank’s business would expand by 25.3% YoY with slight
drift in margin. During FY14, we estimate CUB’s RoAA and RoAE at 1.5% and
20.9% respectively. We revise our earnings estimates upward for FY13 and FY14
by 16.0% and 20.2% respectively and revise our price target by 16.7% to Rs 70.
We reiterate our Buy rating on the stock with a target price of ` 70 at 1.59x adjusted
book value FY14. At current price, it quotes at 1.3x and 1.1x ABV FY13 and FY14
respectively.
Strong business growth: In Q4 FY12, City Union Bank’s (CUB) total business
grew 28.3% YoY to ` 285bn. Deposits and gross advances grew 26.5% and 30.8%
to ` 163bn and ` 122bn respectively. Credit-deposit ratio increased to 74.7% from
72% in Q3 FY12 and 72.2% in Q4 FY11. On the deposits side, the CASA share
declined to 18.2% from 19.6% in Q4 FY11; however rose from 16.8% in Q3 FY12.
On the credit book side, trading & MSME loans, which earn higher yields, constitute
about 50% of the credit book. CUB’s major industry exposure is to textile and iron
& steel industries. The bank’s management does not foresee any significant change
in credit portfolio composition going forward; retail trade, whole-sale trade and SME
would remain mainstay for expanding credit book.
We expect business to expand 24.9% CAGR in FY12-14. We also expect CUB’s
credit book and deposits to grow 25.2% and 24.7% CAGR respectively in FY12-14.
Rapid branch expansion and entry into new geographies will aid low-cost deposit
mobilization.
Sequential uptick in margin: NIM fell to 3.39% from 3.79% in Q4 FY11; however
rose from 3.24% in Q3 FY12. Higher rise in yield on funds (37bps QoQ) as against
cost of funds (20bps QoQ) aided margin on sequential basis. Going ahead, margin
could be under strain mainly due to pressure on CASA share and declining trend in
interest rate cycle; almost 80% of the bank’s credit book is on floating rate basis.
We expect a slight drift in margins due to faster decline in lending rates; we estimate
margin to be in the 3.05-3.10% range for FY12-13.
Operating expenses led by branch expansion: In Q4 FY12, the bank added 14
branches and 123 ATMs, taking the total branch network to 300 branches and 501
ATMs. This resulted in slight higher operating overheads; it rose 25% to ` 836mn.
The bank’s cost-income ratio increased to 42.3% from 40.6% in Q4 FY11 and 40%
in Q3 FY12. On the back of better operating efficiencies in place, we expect CUB’s
C-I ratio to remain in the range of 41-42%.
Non-fund income aided operating profit levels: Other income grew 36% to `
612mn from ` 450mn in Q4FY11 (primarily, on account of 115% YoY jump in treasury
income and 135% YoY rise in forex gains). Hence non-fund income resulted in
higher than expected 17% YoY jump in operating profit to ` 1.14bn (Dolat est: `
1.0bn). On fee income front, the bank’s management expects that core fee income
would grow in-line with credit growth. Going forward, it is expected that bank will
maintain its non-fund income growth at 12.7% CAGR over FY12-14 primarily, on
account of higher fee income.
Better asset quality on sequential basis: During the quarter, CUB’s gross NPA
and net NPA sequentially decline by 4.4% and 3.6% to ` 1.2bn and ` 540mn
respectively. Net NPA and gross NPA ratios sequentially drifted down by 7bps and
16bps to 0.44% and 1.01% respectively. The ratios declined YoY by 8bps and
20bps respectively. Provision coverage ratio remains stagnant at 77%. Overall,
asset quality improved during the quarter.
The gross slippage ratio decreased to 1.17% from 2.2% in Q3 FY12 and 2.68% in
Q4 FY11. The total outstanding restructured loan book at the end of Q4 FY12 stood
at ` 2.7bn (slight decline from ` 2.8bn as on Q3 FY12). During this quarter, the
bank has not restructured any accounts. Almost 86% of the restructured loan book
completed one year of principal repayment after the moratorium period.
Valuation
In FY13, in our view, the bank’s business would expand by 25.3% YoY with slight
drift in margin. During FY14, we estimate CUB’s RoAA and RoAE at 1.5% and
20.9% respectively. We revise our earnings estimates upward for FY13 and FY14
by 16.0% and 20.2% respectively and revise our price target by 16.7% to ` 70. We
reiterate our Buy rating on the stock with a target price of ` 70 at 1.59x adjusted
book value FY14. At current price, it quotes at 1.3x and 1.1x ABV FY13 and FY14
respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Core interest income, operating profit & bottom-line ahead of
expectations
Strong business growth continues with rebound in better liability side
management
Further improvement in asset quality and stable margin improves overall
quality of result
We reiterate our positive stance on the stock with a target price of ` 70
In Q4 FY12, City Union Bank’s (CUB) NII grew 14.7% YoY to ` 1.4bn — 7.8%
higher than our estimates. NIM fell to 3.39% from 3.79% in Q4 FY11 and rose
from 3.24% in Q3 FY12. Higher rise in yield on funds (37bps QoQ) as against
cost of funds (20bps QoQ) aided margin (on sequential basis) and core interest
income.
Other income grew 36% to ` 612mn from Rs 450mn in Q4FY11 (primarily, on
account of 115% YoY jump in treasury income and 135% YoY rise in forex
gains). Hence higher core interest income and non-fund income resulted in
higher than expected 17% YoY jump in operating profit to ` 1.14bn (Dolat est:
` 1.0bn).
Decline of 18% YoY in total provisions (excluding tax expenses) to ` 295mn &
53% YoY decrease in NPL provisioning to ` 193mn further aided bottom-line
growth. It reported a bottom-line of ` 720mn compared to our estimates of `
559mn and consensus estimate of ` 615mn.
During the quarter, asset quality improved with net NPA ratio declining by 7bps
QoQ & 8bps YoY to 0.44% and gross NPA ratios declining by 16bps QoQ & 20bps
YoY to 1.01%. Provision coverage ratio remains stagnant at 77%. CUB’s gross
slippage ratio decreased to 1.17% from 2.2% in Q3 FY12 and 2.68% in Q4 FY11.
The total outstanding restructured loan book at the end of Q4 FY12 stood at Rs
2.7bn (slight decline from ` 2.8bn as on Q3 FY12). During this quarter, the bank
has not restructured any accounts.
In FY13, in our view, the bank’s business would expand by 25.3% YoY with slight
drift in margin. During FY14, we estimate CUB’s RoAA and RoAE at 1.5% and
20.9% respectively. We revise our earnings estimates upward for FY13 and FY14
by 16.0% and 20.2% respectively and revise our price target by 16.7% to Rs 70.
We reiterate our Buy rating on the stock with a target price of ` 70 at 1.59x adjusted
book value FY14. At current price, it quotes at 1.3x and 1.1x ABV FY13 and FY14
respectively.
Strong business growth: In Q4 FY12, City Union Bank’s (CUB) total business
grew 28.3% YoY to ` 285bn. Deposits and gross advances grew 26.5% and 30.8%
to ` 163bn and ` 122bn respectively. Credit-deposit ratio increased to 74.7% from
72% in Q3 FY12 and 72.2% in Q4 FY11. On the deposits side, the CASA share
declined to 18.2% from 19.6% in Q4 FY11; however rose from 16.8% in Q3 FY12.
On the credit book side, trading & MSME loans, which earn higher yields, constitute
about 50% of the credit book. CUB’s major industry exposure is to textile and iron
& steel industries. The bank’s management does not foresee any significant change
in credit portfolio composition going forward; retail trade, whole-sale trade and SME
would remain mainstay for expanding credit book.
We expect business to expand 24.9% CAGR in FY12-14. We also expect CUB’s
credit book and deposits to grow 25.2% and 24.7% CAGR respectively in FY12-14.
Rapid branch expansion and entry into new geographies will aid low-cost deposit
mobilization.
Sequential uptick in margin: NIM fell to 3.39% from 3.79% in Q4 FY11; however
rose from 3.24% in Q3 FY12. Higher rise in yield on funds (37bps QoQ) as against
cost of funds (20bps QoQ) aided margin on sequential basis. Going ahead, margin
could be under strain mainly due to pressure on CASA share and declining trend in
interest rate cycle; almost 80% of the bank’s credit book is on floating rate basis.
We expect a slight drift in margins due to faster decline in lending rates; we estimate
margin to be in the 3.05-3.10% range for FY12-13.
Operating expenses led by branch expansion: In Q4 FY12, the bank added 14
branches and 123 ATMs, taking the total branch network to 300 branches and 501
ATMs. This resulted in slight higher operating overheads; it rose 25% to ` 836mn.
The bank’s cost-income ratio increased to 42.3% from 40.6% in Q4 FY11 and 40%
in Q3 FY12. On the back of better operating efficiencies in place, we expect CUB’s
C-I ratio to remain in the range of 41-42%.
Non-fund income aided operating profit levels: Other income grew 36% to `
612mn from ` 450mn in Q4FY11 (primarily, on account of 115% YoY jump in treasury
income and 135% YoY rise in forex gains). Hence non-fund income resulted in
higher than expected 17% YoY jump in operating profit to ` 1.14bn (Dolat est: `
1.0bn). On fee income front, the bank’s management expects that core fee income
would grow in-line with credit growth. Going forward, it is expected that bank will
maintain its non-fund income growth at 12.7% CAGR over FY12-14 primarily, on
account of higher fee income.
Better asset quality on sequential basis: During the quarter, CUB’s gross NPA
and net NPA sequentially decline by 4.4% and 3.6% to ` 1.2bn and ` 540mn
respectively. Net NPA and gross NPA ratios sequentially drifted down by 7bps and
16bps to 0.44% and 1.01% respectively. The ratios declined YoY by 8bps and
20bps respectively. Provision coverage ratio remains stagnant at 77%. Overall,
asset quality improved during the quarter.
The gross slippage ratio decreased to 1.17% from 2.2% in Q3 FY12 and 2.68% in
Q4 FY11. The total outstanding restructured loan book at the end of Q4 FY12 stood
at ` 2.7bn (slight decline from ` 2.8bn as on Q3 FY12). During this quarter, the
bank has not restructured any accounts. Almost 86% of the restructured loan book
completed one year of principal repayment after the moratorium period.
Valuation
In FY13, in our view, the bank’s business would expand by 25.3% YoY with slight
drift in margin. During FY14, we estimate CUB’s RoAA and RoAE at 1.5% and
20.9% respectively. We revise our earnings estimates upward for FY13 and FY14
by 16.0% and 20.2% respectively and revise our price target by 16.7% to ` 70. We
reiterate our Buy rating on the stock with a target price of ` 70 at 1.59x adjusted
book value FY14. At current price, it quotes at 1.3x and 1.1x ABV FY13 and FY14
respectively.
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