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Friday, November 20, 2009

City Union Bank Ltd:Future growth prospects and outlook,buy/sell/hold,recomendation and analysis

Scripscan:City Union Bank Ltd

Story:In Q2FY10, City Union Bank (CUB) reported de-growth of 6.1% (Y/Y) in net interest income to Rs 591 million compared to our estimates of Rs 647 million; deviation from our estimates was due to much lesser incremental credit-deposit ratio at 45% compared to 73% in Q2FY09 and 56% in Q1FY10. Sequentially yield on funds improved by 4 bps to 9.60% and cost of funds reduced by 2 bps to 7.19%. Improvement in CASA deposit share to 19.97% also aided the bank's cost of liabilities; CUB's CASA deposits share increased by 11 bps (Y/Y) and 179 bps (Q/Q). On non-interest income front, CXB income reported healthy growth of 13% (Y/Y) to Rs 51 million and treasury income grew to Rs 274 million compared to Rs 32 million in Q2FY09.Strong performance on other income led to 19% (Y/Y) growth in operating profit to Rs 641 million compared to our estimate of Rs 538 million. In Q1FY10, total provisions were lesser mainly due to much lesser bad debts provisions of Rs 10 million against Rs 90 million in Q2FY09 though gross NPAs went up by 35% (Y/Y) to Rs 1.15 billion and added fresh NPAs of Rs 67 million. The bank's bottomline grew by 22% (Y/Y) to Rs 458 million against our estimate of Rs 370 million mainly due to much higher treasury gains and lesser than expected bad debts provisions. We revise our earning estimates upward by 11% and 4.7% for FY10 and FY11 to factor in improvement in bank's deposit profile and higher treasury income. We increase our target price by 19% to Rs 25 and upgrade stock rating to market performer from previous rating of sell. At current price, the stock quotes at 1.18x adjusted book value FY11.


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