Buy City Union Bank; target of Rs 300: Emkay Global Financial

Moneycontrol • 2 days ago

Original source

Key Investment Pillars

  • CUBK’s credit growth accelerated to ~27% yoy/~7% qoq, led by strong momentum in SME (+22% yoy) and agri (+32% yoy), with management targeting credit growth 2–3ppt above industry growth.
  • Around 55% of the loan portfolio is EBLR-linked, providing scope for asset-side repricing following policy-rate changes, with management expecting NIM to remain at 3.85–3.95% in 3Q and 4QFY27.
  • The bank’s asset quality continued to improve with contained slippages of Rs1.75bn (1.2% of loans), supported by better recoveries and write-offs, leading to a 29bps qoq improvement in GNPA ratio to ~1.4% and NNPA to ~0.5%.
  • Management expects the bank to report a strong ROA of ~1.6-1.8% over FY27-FY29E, driven by better net income, contained opex, and lower credit costs.

Thesis Validation Checklist

  • Investors should watch for CUBK’s ability to sustain credit growth above industry average, improvement in asset quality, and stability in NIM.
  • The bank’s ability to manage deposit growth and maintain a stable CASA ratio will be crucial.
  • Any changes in the bank’s provisioning and write-off policies, as well as its ability to recover from technically written-off accounts, will be important to monitor.
  • The bank’s progress in expanding its retail lending business, particularly in the secured lending space, will be a key factor in driving growth.