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Dolat Capital Report
CSB Bank reported a weak quarter with sharp decline in net interest margin (-70 basis points QoQ), higher slippages for the second consecutive quarter (at 1.7%), and muted return on asset of 1.24%. Provision coverage ratio shrinkage to 60% (-5% QoQ) helped arrest credit costs at 30 bps. Margins were hurt by derecognition of penal interest (~40 bps impact), higher interest reversals, and rise in CoD.
Management lowered NIM guidance to 4.5-4.8% (4.5-5% earlier) but maintained RoA of 1.5-1.8% with credit costs at 20-30 bps. We build in 15-20 bps lower NIM vs earlier over FY25/26E factoring in some penal interest impact (to be partly offset by the change in product construct) and slightly higher cost of fund.
With flattish growth in corporate book and slower unsecured retail growth, we factor in 18% YoY advances growth over FY25/26E (23% earlier). With earnings downgrade of 10-12% over FY25/26E, maintain ‘Buy' rating with revised target price of Rs 420 (from Rs 480 earlier), valuing at 1.5 times FY26E price/adjusted book value (1.7 times earlier) against return on asset/return on equity of 1.7%/16%.
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