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Spark Capital: City Union Bank 4QFY13 Result Review




Spark Capital Advisors(India) Private Limited


23 May 2013





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City Union Bank 4QFY13 Result Review - Numbers in line, comfort on asset quality continues: Maintain BUY City Union Bank’s (CUB) 4QFY13 results were in line with our estimates, with a 34% yoy rise in core fee income and a 27% rise in NII offsetting a 48% yoy rise in provisions. Adjusted for a large slippage of Rs. 350mn, slippages (1.8% annualized) were within the usual quarterly run rate of ~Rs. 330mn while loans amounting to Rs. 700mn (TNEB Rs. 500mn) were restructured during the quarter; the restructured stock currently accounts for 1.5% 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, 51% has been repaid while ~60% of the outstanding amount of Rs. 2.4bn, has completed 1year of repayment post moratorium, thereby considerably reducing the risk of slippages going forward. We continue to like CUB for its ability to deliver consistently on the Growth-Asset quality-Profitability-Capital adequacy equation and reiterate a BUY valuing the stock at 1.8x FY14E ABV. Although gold loans accounted for 53% of FY13 incremental loan book growth, only ~6% of the book carries a LTV >85%, while 60% of the book is agri linked where yields are ~11%, ensuring no negative impact to the gold portfolio post the recent gold price correction. Treasury income contributed to only 13% of FY13 non-interest income, indicating sustainability of core fee income streams. Business growth was strong with advances and deposits growing qoq by 5.1% and 6.6% respectively while CASA deposits increased 6.5%. Operating expenses increased 6% qoq; CUB’s defined contribution pension scheme and independent settlement plans (non-IBA linked) mean costs are unlikely to spiral post the impending wage revision, accordingly we estimate a CIR of 42% for FY14E.

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