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ICICI Securities Report
Despite broadly stable ~1.5% return on asset over the last two years, City Union Bank Ltd.'s stock has underperformed peers due to concerns about subdued loan growth / net interest margin performance in arguably one of the strong NIM cycle in recent times.
Over the last couple of quarters, City Union Bank seems to have addressed legacy issues impacting loan growth and has overhauled IT systems. Importantly, the bank has hired lateral talent and intends to chase growth via new products while augmenting non-branch channel.
Gearing up for new products and channels through fresh talent is a welcome wind of change, in our view.
We believe loan growth should bottom out in FY24E and accelerate to 13/15% YoY over FY25/26E.
We upgrade City Union Bank to Add with a revised target price of Rs 170, valuing the stock at ~1.25 times FY26E adjusted book value.
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