City Union Bank - On Right Track; Result Update Q3FY15 :: Edelweiss

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City Union Bank -Asset quality stabilises, lower provision aids PAT :: ICICI Securities, report

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

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City Union Bank - Moderation in growth, near term triggers limited • :: ICICI Securities, pdf link

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City Union Bank Ltd. (CUB) -Q3FY14 Result Update -Sushil Research

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.

City Union Bank: Buy:: Business Line

A sturdy franchise City Union Bank (CUB):: Ambit

A sturdy franchise
City Union Bank (CUB) emerges as one of the most robust regional
bank franchises in our analysis of regional banks. Its strong income
generation (NII and fee income to assets of 4.6% vs peer average of
4.2%), controlled cost base and healthy asset quality more than offset
the weakness on the liabilities side. Hence, superior RoAs of 1.5-1.6%
are the best among regional banks and are closer to the new private
sector banks. In the near term, we expect the bank to maintain its
margins in the current tight liquidity environment, given that the
duration of the loan book is lower than the duration of its borrowings.
CUB would deliver net profit CAGR of 20% in FY13-15. The stock is
trading at 1.0x FY14 BV, which is an attractive entry point. We retain
our BUY stance.
Competitive position: MODERATE Changes to this position: STABLE
A robust franchise: City Union Bank emerges as one of the most robust
regional bank franchises in our analysis. Its strong income generation (NII and
fee income to assets of 4.6% vs peer average of 4.2%), controlled cost base
and healthy asset quality more than offset the weakness on the liabilities side.
This has helped CUB to deliver largely stable and high RoAs of 1.6% over the
last eight years along with average asset growth of 27%.
Strong growth to continue: CUB has delivered better loan growth vs its
peers (FY06-13 CAGR of 29%), owing to the relatively better lending
opportunities in its home state, Tamil Nadu (discussed on page 28). We expect
CUB to maintain its loan growth momentum, with a CAGR of 22% in FY13-15,
owing to its continued focus on its core SME franchise and relative insulation
to large corporate loans.
In a better position to manage RoAs: We expect CUB to maintain its RoAs
at 1.45% over the next two years, as: (i) the duration of the loan book at 1.5
years is significantly lower than the 2-3-year duration of its deposits, which
would help the bank to maintain its margins in an environment of tight
liquidity; (ii) income growth keeps pace with cost growth, leading to a stable
cost/income ratio of 42-43% over the next two years; and (iii) credit costs
would peak at 94bps in FY14 (vs 81bps in FY13). Note that CUB’s credit costs
have been relatively high (FY08-13 average of 81bps) due to CUB’s market
positioning as a SME lender (reflected in high yields), but its asset quality
trends have been among the least volatile (65-85bps in the last three years).
Valuation and stance: We cut our FY14 estimates by 14% due to lower NIM
and higher credit cost estimates. We maintain our BUY stance, as at 0.9x oneyear forward BV, the valuations are reasonable for a strongly profitable
franchise. Our target price of `66/share implies 1.45x FY14 P/B and 7.5x
FY14 P/E. Higher-than-expected deterioration of asset quality is the key risk to
our BUY stance.

Exemplary consistency - CUB :: Centrum

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.

Go for City Union Bank deposit :: Business Line

City Union Bank offers 10 per cent interest on its 500-day deposit scheme.

With the 25 basis points repo rate cut by RBI, banks may further slice interest rates on fixed deposit schemes. If you are worried about lower returns on your fixed deposits, here is a good option you can consider. South-based City Union Bank’s special deposit scheme for 500 days offers you the highest interest among other bank FD schemes.

Attractive returns

City Union Bank offers 10 per cent annual interest under its special 500-day deposit scheme with the interest being compounded quarterly. Most other banks offer 9 per cent or less under their 1-2 year FD schemes. The minimum amount you need to deposit under this scheme is Rs 5,000. Interest is paid on a quarterly basis. You can opt for a monthly pay-out too.

Withdrawal penalty

Similar to other FDs, you can avail loan on this scheme too. The interest on the FD loan may be 2 percentage points higher than the deposit interest rates. In case you opt to pre-close your fixed deposit, you will be eligible to receive interest only at the rate applicable for the period until which your money was parked with the bank. In addition, the bank will charge you a penal interest of 1 per cent in case you withdraw the deposit before maturity.

The bank also offers online FD transaction facility for existing customers.

The tax treatment under this scheme is comparable to other FDs. Interest income beyond Rs 10,000 will attract a TDS of 10 per cent if you fail to provide a 15G/15H declaration stating that your interest income is within the exemption limits.

Low risk

A volatile stock market has tempered risk appetite among Indian investors. In the current backdrop of rising corporate fraud, it is pertinent to ensure safety of principal while pursuing attractive returns. Bank FD is the safest investment choice for a conservative investor. Any sum up to Rs 1 lakh is secured by deposit insurance. In the event of the bank going bust, your principal is safe and will be paid by the insurer. Hence deposit of any sum less than a lakh practically carries zero risk.

City Union Bank has strong presence in the South and is aggressively expanding footprint in this market. The bank currently operates through 336 branches across the country.

For the nine month period ending December 2012, its total income grew by over 30 per cent to Rs 1,784 crore driven by a robust rise in the interest income. Net interest margin stood at 3.3 per cent during the same period. Net profit rose 15 per cent during the first nine months to Rs 240 crore. The bank managed a healthy 23 per cent growth in deposits as on December 2012. The net non-performing assets stood at 0.6 per cent as on December 2012.

City Union Bank - Good set of Numbers:: Anand Rathi

City Union Bank came up with decent set of number. Total income increased from Rs. 489 Cr. (Q3,12) to Rs. 621 Cr. ( Q3,13 ) almost 27% growth while Interest expenses has grew from Rs. 316 Cr. to 392 cr. for the same period and increased by 24%. Spread has increased by almost 300 bps.

Growth is not confined to one segment. Business has grown from all three segments.

Treasury Revenue increased from Rs. 105 cr. from Rs. 84 cr. (25% growth YoY) and operating profit grew by 100%

Wholesale Banking Revenue increased from Rs. 186 cr. from Rs. 136 cr. (36% growth YoY) and operating profit is flat.

Retail Banking increased from Rs. 328 cr. from Rs. 267 cr. (22% growth YoY) and operating profit grew by 26%.

Overall Pretax pre provision profit grew by 25%.

NPA is more or less consistent inspite  of turbulent economic environment. Net NPA has slightly  increased from 0.51% (Q3,12) to 0.63% (Q3,13) and 0.60 ( Q2,13 ).

Bank maintain healthy ROA which has increased from 1.62 (Q3,13 ) to 1.65 (Q3,13).

Overall Good set of numbers posted by City union bank.

CUB Rs.61, Stock has been moving in a sharp rising channel and with Rs.58 as Support stock looks very good to target Rs.70 & 75 as Target.

FYI…

Performance of Weekly Option

Co. Name	Accumulated till 28th Dec, 12	7th Jan, 13	14th Jan, 13	21st Jan,13	28th Jan, 13	Total Stocks	CMP	Total Value
Cipla	193	2	2	2	3	202	414	83557
G S F C	1129	14	14	15	15	1187	65	77214
Amara Raja Batt.	311	4	3	3	3	324	301	97540
Pidilite Inds.	347	4	5	5	5	366	246	89999
Dabur India	626	8	8	8	8	658	133	87646
LIC Housing Fin.	271	3	4	4	4	286	283	81010
Indian Bank	372	5	5	5	5	392	203	79498
City Union Bank	1343	17	17	17	16	1410	62	87984
G M D C	390	5	5	5	5	410	194	79397
Bajaj Corp	339	4	4	4	4	355	243	86230
Total Investment	701777	9778	10016	10038	10246
Total Cost of Investment	741855
Value of Investment	850074
Total Return on SIP (%)	15
Product Inception
Date	3rd August, 2011			Return (%)			2nd Feb, 2013
Nifty Level	5405			11			5999
BSE 500	7011			9			7637

Performance of Monthly Option

Co. Name	Accumulated till 15th Dec, 12	15th Jan, 13	Total Stocks	CMP	Total Value
Cipla	45	2	47	414	19442
G S F C	263	15	278	65	18084
Amara Raja Batt.	72	3	75	301	22579
Pidilite Inds.	81	5	86	246	21147
Dabur India	146	8	154	133	20513
LIC Housing Fin.	63	4	67	283	18978
Indian Bank	87	5	92	203	18658
City Union Bank	313	17	330	62	20592
G M D C	91	5	96	194	18590
Bajaj Corp	79	4	83	243	20161
Investment	163361	10128
Total Cost of Investment	173489
Value of Investment	198743
Total Return on SIP (%)	15
Product Inception
Date	3rd August, 2011		Return (%)		2nd Feb, 2013
Nifty Level	5405		11		5999
BSE 500	7011		9		7637

Thanks & Regards

Healthy core performance CUB :: Centrum

Healthy core performance
CUB’s Q2FY13 core performance (Rs1283mn, 26.4% YoY) came in line with our
estimates driven by a healthy NII and fee income performance. Higher
provisioning during the quarter contained the bottomline at Rs804mn (vs
estimate of Rs853mn) as GNPA was up 21% QoQ. However, asset quality
matrix still remains robust with %GNPA at 1.24% and restructured assets at
4.5% of loans. We continue to remain positive on the stock driven by its ability
to deliver consistently robust return ratios. Maintain Buy with a revised target
of Rs65.
NIM expands 15bps QoQ: The reported NIM expanded by 15 bps QoQ to
3.3%, driven primarily by easing in cost of funds as blended yields were flat
QoQ at 10.7%. The NIM expansion was in line with our expectations. The NIM
expansion along with continued healthy credit growth (27% YoY) led to a
robust 24% YoY growth in NII. The management has guided for stable NIMs
for H2FY13, which we believe is achievable considering gradual easing in
funding costs and pricing power enjoyed by the bank in key segments.
Asset quality slips but remains comfortable: CUB’s asset quality matrices
deteriorated during Q2FY13 with GNPA jumping 21% QoQ though %GNPA
still remains comfortable at 1.24%. Slippage rate inched up higher to 1.9%
(from 1.5% in previous quarter). It should be noted that the slippages of
Rs610mn includes a pharma company exposure of Rs320mn, which slipped
due to temporary cashflow mismatch. The management expects recoveries
from this account during H2FY13. Conservatively, we have factored in a 2%
slippage rate and credit cost of 70bps for FY13.

City Union Bank- Valuation captures positives:: Karvy

Valuation captures positives
In Q2FY13, City Union Bank’s (CUB) profits grew 3.7% YoY (up 9% QoQ)
to Rs804 mn, below estimate owing to higher NPA provisions. NII grew
24% Yoy (up 8% QoQ) to Rs1.5 bn driven by robust loan growth. Operating
profit grew 26.4% YoY (12.4% QoQ) to Rs1.3 bn marginally higher than our
estimate. NIM improved 15bps to 3.3% owing to improving yields on
advances, while asset quality showed slight deterioration.

City Union Bank :: Prabhudas Lilladher, Banks/Financials conference

􀂄 SME focused: City Union bank is primarily focused on SME /Retail segments and
the exposure to a single client is usually less than Rs50mn. Trading and MSME
comprises 50% of the loan book. Retail Loans contribute 12%, Agriculture 14%,
and Large industries 16%. A large part of its book is linked to working capital
(65%) and almost all lending is done against hard collaterals (mainly real estate
– promoter residence).
􀂄 Growth Outlook; branch expansion strategy: The bank aims to grow at +25%
and plans to increase branch network to 500 branches by FY15 from ~300
branches currently. ~70% branches are in Tamil Nadu and new incremental
branches will also be of similar geographical spread. Outside TN, CUB is
expanding in centres where clients have business links especially in large textiles
hubs near Ludhiana in North and Gujarat/Maharashtra in West.
􀂄 Asset Quality‐ Update on textiles: The bank is seeing asset quality concerns on
agri. portfolio (comprising 14%) as there is a tendency on the part of the framers
to delay payments expecting some kind of waivers in the upcoming election.
Textile portfolio is not seeing any issues, though the sector is facing power
shortage issues. Health of spinning industry has improved significantly in the last
12mnts after the crash in cotton prices. In 2011. Overall, smaller ticket sizes and
fully secured lending has been key strengths in CUB’s asset quality and
management continues to remain focused on fully secured hard collateral based
lending.

Buy City Union Bank; Target : | 57 ::ICICI Securities, PDF link

City Union Bank - TP: ` 70 Buy :Dolat Capital

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City Union Bank -Strong ties in south, rural & semi-urban India drive growth; Buy ::Anand Rathi

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City Union Bank’s (CUB) prudent loan growth, best-in-class
productivity and superior asset quality are likely, in our view, to drive
profitability and sustain an RoA of 1.7% over FY12-14. We initiate
coverage on the stock with a Buy rating and a price target of `68.
 Prudent growth with strong customer focus. With over 86% of its
branches in south India, ~47% in rural and semi-urban India, and its
century-old experience in the industry, CUB has forged strong customer
relationships. As a result, its NIM (3.4% in Dec ’11) is traditionally higher
than that of peers, despite a highly-secured loan book (98% of loans) and a
relatively low-cost deposit share (16.8% in Dec ’11). Management has
targeted balanced and steady business growth across credit cycles, while
preserving credit quality and profitability. We estimate 30% CAGR in loan
book over FY12-14, led by a customer-centric strategy and likely addition
of 200 branches.
 Best-in-class productivity. Operating costs have grown at a slower
pace than CUB’s balance sheet in the last five years, enabling it to enjoy an
industry-low cost-to-asset of 1.8%. The employees’ union has maintained
cordial relations with senior management, with no instances of labour
unrest since inception. We expect the strong productivity to help sustain
profitability and maintain a high RoA of 1.7% over FY12-14.
 Superior credit quality. Gross NPA (1.2% of loans) and net NPA (0.5%
of loans) are some of the lowest in the sector, as a result of its robust credit
appraisal, a highly collateralized loan book and a deep understanding of
customers’ cash-flows. NPA coverage is a healthy 76.2%, while tier-1
capital of 11.5% suffices for prudent loan growth.
 Valuation. At our Jun’13 price target, the stock would trade at a PBV
of 1.8x FY13e and 1.5x FY14e. Our price target is based on the twostage
DDM (CoE: 13.1%; beta: 0.6; Rf: 8%). Risk: Slower-thanexpected
economic growth could impact loan growth and credit quality