City Union Bank Q2 Results Review - Strong Quarter; Growth Trends Improve: Dolat Capital

Dolat Capital Report

City Union Bank reported a good quarter with-

1. better than expected net interest margin at 3.67%,

2. healthy loan growth at 4% QoQ, and

3. contained slippages at 1.5% along with improved provision coverage ratio at 55%.

NIM improvement was led by 20 bps rise in loan yields, mainly driven by tweaked gold portfolio yields.

Growth in Q2 is primarily driven by existing business lines, while retail products will contribute to growth from Q4 FY25. Credit growth to gain momentum in H2 FY25 with significant improvement expected from FY26E. Additionally, PCR to improve hereon with net non-performing asset guided to be at 1.2-1.25% by FY25E.

We tweak estimates, factoring in slightly improved growth for FY25E, lower net slippage, and higher PCR levels.

Given improved visibility on growth, normalizing credit environment (where conservative lenders typically attract a valuation premium), and undemanding valuations (1.1 times Sep-26 adjusted book value), we revise rating from Accumulate to ‘Buy’ with target price of Rs 190 (from Rs 180 earlier), valuing the bank at 1.3 times Sep-26E P/ABV against RoA/RoE of 1.5%/13%.

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