Exemplary consistency
CUB’s Q4FY13 core performance (Rs1497mn, 31% YoY) came in well above our estimates driven by a spike in recoveries and contained opex. However, higher provisioning (significant write-offs) and effective tax rate contained the bottomline at Rs825mn (vs estimate of Rs862mn). Overall asset quality metrics remains robust with %GNPA at 1.13% and restructured assets at 1.5% of loans. Despite materially challenging operating environment, CUB has delivered a consistent 1.5% RoA with +20% RoE – in line with the last decade. We remain positive on the stock driven by its ability to deliver consistently robust return ratios. Maintain Buy and the target price of Rs65.
NIM stable sequentially: CUB reported NII of Rs1.73bn, up 26.8% YoY driven by strong credit growth (25.9%YoY) and sequentially stable NIMs. Stable NIM is the result of a 10bps increase in cost of funds offsetting 10bps higher blended yields. FY13 reported NIM came in at 3.35% vs 3.4% for FY12. We are factoring in flattish NIM for FY14 on a conservative basis.
Asset quality continues to hold up well: Despite higher slippages (Rs 680mn, 1.9%), asset quality remained largely stable as absolute GNPA remained flat at Rs1730mn due to higher write-offs during the quarter (Rs520mn in Q4 vs Rs500mn in M9). Nearly 50% if the write-offs were due to chunky accounts from varied sectors. The slippage rate for FY13 stood at 1.84% - a mere 30bps rise YoY despite a materially challenging operating environment. Outstanding restructured assets declined from Rs2.97bn to Rs2.35bn (1.5% of loans) following upgrades after completion of two years of satisfactory performance.
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CUB’s Q4FY13 core performance (Rs1497mn, 31% YoY) came in well above our estimates driven by a spike in recoveries and contained opex. However, higher provisioning (significant write-offs) and effective tax rate contained the bottomline at Rs825mn (vs estimate of Rs862mn). Overall asset quality metrics remains robust with %GNPA at 1.13% and restructured assets at 1.5% of loans. Despite materially challenging operating environment, CUB has delivered a consistent 1.5% RoA with +20% RoE – in line with the last decade. We remain positive on the stock driven by its ability to deliver consistently robust return ratios. Maintain Buy and the target price of Rs65.
NIM stable sequentially: CUB reported NII of Rs1.73bn, up 26.8% YoY driven by strong credit growth (25.9%YoY) and sequentially stable NIMs. Stable NIM is the result of a 10bps increase in cost of funds offsetting 10bps higher blended yields. FY13 reported NIM came in at 3.35% vs 3.4% for FY12. We are factoring in flattish NIM for FY14 on a conservative basis.
Asset quality continues to hold up well: Despite higher slippages (Rs 680mn, 1.9%), asset quality remained largely stable as absolute GNPA remained flat at Rs1730mn due to higher write-offs during the quarter (Rs520mn in Q4 vs Rs500mn in M9). Nearly 50% if the write-offs were due to chunky accounts from varied sectors. The slippage rate for FY13 stood at 1.84% - a mere 30bps rise YoY despite a materially challenging operating environment. Outstanding restructured assets declined from Rs2.97bn to Rs2.35bn (1.5% of loans) following upgrades after completion of two years of satisfactory performance.
Strong credit growth continues: The advances book grew by a strong 26% YoY, though lower than the average 30% growth seen in the previous four quarters. From a segment perspective, agriculture (48% YoY) and SME (up 22% YoY) continue to remain the primary drives of incremental loan growth. Meanwhile, savings deposits growth was reasonably healthy at 17% YoY leading to a stable CASA ratio QoQ at 16.8% in Q4FY13. We expect the healthy credit growth to continue and factor in 26% for FY14 which along with a deposit growth of 24.5% implies a CD ratio of 76%.
Robust fee income and recovery performance: Non-interest income growth (31.6% YoY) surprised positively. The robust performance can be traced to continued strength in core fee income flow (up 25.5% YoY) and a sharp rise in recoveries (Rs233mn, up 56% YoY).
Exemplary consistency, Maintain Buy: CUB has continued its consistent trend of 1.5%+ RoA and 20%+ RoE even in FY13 with one of the lowest deviations in the entire banking sector. Moreover, the bank has rewarded its shareholders handsomely with a 100% dividend for FY13 after the attractively priced rights issue recently. The ability to deliver consistent financial performance strongly reflects on the bank’s strong customer relationship, deeper understanding of customer needs and an impressive ability to maintain balance between growth, profitability and quality. We maintain our bullish stance on the bank and our fair value estimate of Rs65 (based on 1.5x Se’14 ABV).
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