“In Q4 FY12, City Union Bank’s (CUB) NII grew 14.7% YoY to Rs 1.4bn- 7.8% higher than our estimates. NIM fell to 3.39% from 3.79% in Q4 FY11 and rose from 3.24% in Q3 FY12. Higher rise in yield on funds (37bps QoQ) as against cost of funds (20bps QoQ) aided margin (on sequential basis) and core interest income. Other income grew 36% to Rs 612mn from Rs 450mn in Q4FY11 (primarily, on account of 115% YoY jump in treasury income and 135% YoY rise in forex gains). Hence higher core interest income and non-fund income resulted in higher than expected 17% YoY jump in operating profit to Rs 1.14bn (Dolat est: Rs 1.0bn). Decline of 18% YoY in total provisions (excluding tax expenses) to Rs 295mn & 53% YoY decrease in NPL provisioning to Rs 193mn further aided bottom-line growth. It reported a bottom-line of Rs 720mn compared to our estimates of Rs 559mn and consensus estimate of Rs 615mn.”
“During the quarter, asset quality improved with net NPA ratio declining by 7bps QoQ & 8bps YoY to 0.44% and gross NPA ratios declining by 16bps QoQ & 20bps YoY to 1.01%. Provision coverage ratio remains stagnant at 77%. CUB’s gross slippage ratio decreased to 1.17% from 2.2% in Q3 FY12 and 2.68% in Q4 FY11. The total outstanding restructured loan book at the end of Q4 FY12 stood at Rs 2.7bn (slight decline from Rs 2.8bn as on Q3 FY12). During this quarter, the bank has not restructured any accounts.”
“In FY13, in our view, the bank’s business would expand by 25.3% YoY with slight drift in margin. During FY14, we estimate CUB’s RoAA and RoAE at 1.5% and 20.9% respectively. We revise our earnings estimates upward for FY13 and FY14 by 16.0% and 20.2% respectively and revise our price target by 16.7% to Rs 70. We reiterate our Buy rating on the stock with a target price of Rs 70 at 1.59x adjusted book value FY14. At current price, it quotes at 1.3x and 1.1x ABV FY13 and FY14 respectively,” says Dolat Capital research report.
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