Hold City Union Bank; target of Rs 134: Arihant Capital

Arihant Capital 's research report on City Union Bank

City Union Bank (CUB) reported weak operating performance during Q4FY20 with asset quality deterioration. NII for the quarter was below our estimate and it fell by 0.3% YoY to Rs 419 cr vs. our estimate of Rs 556 cr. Operating profit of the bank de-grew by ~1% YoY to Rs 335 cr vs. our estimate of Rs 383 cr. Due to five-fold increase in provisions on YoY basis, Bank has reported loss during the quarter. The bank has made Covid-19 provision of Rs 125 cr. Loss for the quarter stood at Rs 95 cr vs. profit of Rs 175 cr YoY. Slippages during the quarter doubled sequentially at Rs 481 cr, resulting in deterioration of asset quality despite higher write-offs. GNPA/NNPA of the bank increased by 59bps/34bps QoQ at 4.09%/2.29% respectively.

Outlook

We maintain our Hold rating on the stock with a revised target price of Rs 134 (Rs 139 earlier), valuing the bank at P/adj. BV of 1.8x to its FY22E ABV.

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