City Union Bank (CUB) has exceeded earning expectations for the recent quarter, with a Profit After Tax (PAT) of Rs. 281 crore ($37.5 million), according to a research report by Sharekhan. This improved performance is largely attributed to the lower credit cost that the bank has incurred this quarter.
The report notes that this is the first quarter since the onset of the COVID-19 pandemic where CUB's asset quality trends have normalized. The bank reported net slips at negative Rs. 13 crore due to a substantial reduction in slippages and an increase in Non-Performing Assets (NPAs) recoveries.
Despite this positive trend, the bank's core Pre-Provision Operating Profit (PPoP) fell 20% year-on-year and 6% quarter-on-quarter, underperforming estimates by 5%. Stressed assets remain high at approximately 5% of advances, and coverage is sub-optimal at approximately 55%.
The near-term growth outlook for CUB remains muted as the bank is not rushing to accelerate growth until asset quality trends return to pre-COVID levels. The bank maintains a hold rating with a price target of Rs. 145 and trades at 1.3 times its forecasted FY2024 Adjusted Book Value (ABV) and 1.1 times its FY2025 ABV. The bank expects back-ended credit growth in FY2024E, according to the research report by Sharekhan.
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