City Union Bank - Steady Performance; Result Update Q2FY15 :: Edelweiss, PDF link

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City Union Bank’s (CUB) Q2FY15 PAT at INR 94 cr was in line with our estimate. Key highlights for the quarter were: 1) muted NII growth (9% YoY) mainly due to slower advances growth (7% YoY) 2) NIMs expanding QoQ by 22bps to 3.54% led by lower cost of funds 3) asset quality holding steady with slippages at 2.1%, lowest in last 4 quarters. GNPL/NNPL ratios remained stable at 2.0%/1.3%, respectively 3) cost-income ratio remained flat QoQ at 42%. Given the highly capitalized Tier-1 position of 15.5%, stressed assets of ~2.8% and relatively strong RoAs of 1.5% vis-à-vis peers, the stock trades at 1.6x FY16 adjusted book.

Business growth muted; NIMs expand

CUB’s Q2FY15 advances growth was muted with growth at 5% QoQ/7% YoY (INR 16,908 cr). In the bank’s largest portfolio - MSME - growth was healthy at 22% YoY while the Retail segment witnessed de-growth of 15% YoY, led by a fall in the bank’s gold loan portfolio. Deposits grew by 10% YoY to INR 23,151 cr, led by strong 21% YoY growth in CASA deposits. The CASA ratio improved by 170bps YoY to 18.5%. NIMs expanded QoQ by 22bps to 3.54%, led by lower cost of funds (down 11bps QoQ at 7.15%) and higher yield on advances (up 60bps QoQ at 13.6%). The credit-to-deposit (CD) ratio increased by 90bps to 73% QoQ. Going forward, we expect NIMs to remain in the range of 3.2% to 3.4% for FY15-16E.

Slippages contained, outlook improving

After the blip in the previous quarter in asset quality (slippages hit >9%), CUB reported better Q2FY15 show, largely owing to lower slippages at 2% (lowest in last 4 quarters) with no fresh restructuring. The headline asset quality remained flat on QoQ basis, with GNPA at 2.0% and NNPA at 1.3%. Going forward, the management believes that there is no major pipeline of NPAs and therefore the asset quality should stabilize. The provision coverage ratio remained comfortable at 62%. During the quarter, restructured assets declined by INR 11 cr to 1.5% QoQ. With stressed assets of 2.8% (NNPAs and standard asset restructuring) and PCR at 62%, we believe CUB is well positioned to tackle asset quality issues vis-à-vis its peers.

LINK

https://www.edelweiss.in/research/City-Union-Bank--Steady-Performance;-Result-Update-Q2FY15/10005175.html