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.
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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.
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