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Spark Capital: 2QFY13 Result Reviews of City Union Bank




Spark Capital Advisors(India) Private Limited


06 Nov 2012





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City Union Bank 2QFY13 review: Comfort on asset quality continues: Maintain BUY City Union Bank’s (CUB) 2QFY13 results were ahead of our estimates, with a 70% yoy rise in core fee income and a 24% rise in NII offsetting higher provisioning costs. Adjusted for a large slippage of Rs. 320mn which CUBK expects to recover in 3QFY13, slippages were within the usual quarterly run rate of Rs. 300mn while restructured stock rose by Rs. 210mn during the quarter to account for 2.3% of the loan book- the second lowest amongst regional peers. Our comfort on asset quality is also an outcome of repayments in the restructured book – of the cumulative Rs. 6bn restructured since FY08, 48% has been repaid; 65% of the outstanding amount of Rs. 3.1bn, has completed 1year of repayment post moratorium, thereby considerably reducing the risk of slippages going forward. We continue to like CUB on most fronts such as capital adequacy, asset quality, risk adjusted yields and healthy NIMs and reiterate a BUY valuing the stock at 1.6x FY14E ABV. Margins expanded 14bps qoq aided by a 20bps expansion in the YoA while the CoF was flat. Treasury income contributed to only 13% of non-interest income, indicating sustainability of core fee income streams. Business growth was strong with advances and deposits growing qoq by 5.2% and 3.7% respectively while CASA grew 6.8%. Operating expenses were flat qoq; CUB’s defined contribution pension and independent settlement plans (non-IBA linked) mean costs are unlikely to spiral post an impending wage revision in November, accordingly we estimate a CIR of 41% for FY13E.

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