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India | Banking

31 July 2013

Quarterly Update/Target price change

City Union Bank


Asset quality improves growth tapering off
Core profitability strong, costs maintained

albeit

credit

Rating : Buy
Target Price : INR 65 Upside : 38% CMP : INR 47 (as on 29 July 2013) Key data
Bloomberg /Reuters Code Current /Dil. Shares O/S (mn) Mkt Cap (INRbn/US$mn) Daily Vol. (3M NSE Avg.) Face Value (INR) 1 US$= INR 59.3
Source: Bloomberg ; * As on 29 July 2013

Global Markets Research

The bank reported good set of numbers with NII growth of 36%, PPoP growth of 42%, PBT growth of 46% and PAT growth of 22%. Both credit and deposits grew by 1% sequentially and ~20% YoY. Management attributed major part of credit growth to be coming from the robust branch expansion incurred over the last two years. With management intentions to not to increase further gold loan share in the portfolio (at 23% of credit currently), credit growth could get weaker going ahead. Low slippages support profitability, coverage levels rise Annualized slippages at 1.2% were encouraging though fewer writeoffs led gross NPA to increase sequentially by 12 bps even as net NPA remained flat QoQ. Provision coverage increased by 500 bps sequentially to 50%. With upgradations of another INR 0.5 bn in the restructured book this quarter and marginal additions, the restructured portfolio fell down to 1.42% of the book. Valuations attractive With a high retail deposit base (less than 5% bulk share), a low CD ratio, marginal consortium lending (less than 1%), healthy asset mix (no infra exposures), low AFS book at 12% of investments, and strong return ratios (19% ROE and 1.5% ROA), we feel the bank is relatively well placed given the recent developments and macro worries. Nonetheless, weak credit growth given the macro environment shall push the managements long term targets for the bank a little further in our view, leading us marginally lower expected multiples to 1.4 FY15 P/ABV implying a price of INR 65 per share. The stock currently trades at 1 FY15 P/ABV.

CUBK IN/ CTBK.BO 539/539 25/421 221,597 1

Price & Volume


65 60 55 50 45 40 Jul-12 Nov-12 Mar-13 0 Jul-13 4 2 6

Vol. in mn (RHS) Source: Bloomberg

City Union Bank (LHS)

Share holding (%)


Promoter Institutional Investors Other Investors General Public Source: BSE

Q2FY13 Q3FY13 Q4FY13 Q1FY14 0.0 30.1 19.0 50.9 0.0 30.8 18.5 50.7 0.0 29.6 18.6 51.7 0.0 29.5 19.3 51.2

Price performance (%)


Sensex Bankex Index City Union Bank Source: Bloomberg

3M 1.1 (18.1) (14.0)

6M (2.0) (19.1) (23.4)

12M 16.4 1.5 4.6

Y/E Mar INR (mn) Net Interest Income Net Profits

Q1FY14 1,874 903

Q4FY13 1,733 825

Q1FY13 1,379 739

QoQ (%) 8.1 9.5

YoY(%) 35.82 22.17

Q4FY13E 1,700 859

Variance (%) 10.21 5.09

Source: Company, Elara Securities Estimate

Key Financials
Y/E Mar (INR mn) FY11 FY12 FY13 FY14E FY15E NII 4,200 4,998 6,241 7,617 9,536 YoY (%) 51.0 19.0 24.9 22.1 25.2 PPoP 3,610 4,271 5,235 6,517 8,128 YoY (%) 41.1 18.3 22.6 24.5 24.7 PAT 2,151 2,803 3,221 3,775 4,777 YoY (%) 40.8 30.4 14.9 17.2 26.6 Fully DEPS 5.3 6.9 6.8 6.6 7.9 YoY (%) 32.8 29.7 (1.1) (3.4) 20.1 ROAE (%) 23.5 24.9 22.3 19.2 18.5 ROAA (%) 1.6 1.7 1.6 1.5 1.5 P/E (x) 8.4 6.6 6.9 7.2 6.0 P/ABV (x) 1.9 1.5 1.4 1.3 1.0

Source: Company, Elara Securities Estimate

Mona Khetan mona.khetan@elaracapital.com +91 22 3032 8514


Elara Securities (India) Private Limited

City Union Bank

Standalone Financials (Y/E Mar)


Income Statement (INR mn) Net Interest Income Add: Other income Total Income Less: Operating Expenses Pre-provision operting profit Less: provisions PBT Less: taxes Reported PAT Balance Sheet Networth Deposits CASA % Borrowings Other liabilities & provisions Total liabilities Cash & Bank Balances Advances Investments Fixed Assets Other Assets Total assets Ratios Per Share data & Valuation Ratios EPS Diluted (INR) DPS (INR) Adj BV/share (INR) ROAA (%) ROAE (%) P/E (x) P/Adj BV (x) Dividend Yield (%) Yields and Costs (%) Yield on Advances Yield on Earning Assets Cost of funds NIM Asset Quality Gross NPA (INR mn) Gross NPA (%) Net NPA (INR mn) Net NPA (%) NPA Coverage ratio (%) Slippages (%) Capital Adequacy (%) Tier I CAR Operational Ratios (%) Cost-Income ratio Cost-Average assets Fee Income as a % of Total Income Stated provisions / avg Advances Credit/Deposits
Source: Company, Elara Securities Estimates

FY12 4,998 2,071 7,070 (2,799) 4,271 (838) 3,433 (630) 2,803 FY12 12,431 163,408 18.2 3,487 4,181 183,506 11,361 121,375 45,862 977 3,932 183,506 FY12 6.9 1.0 29.1 1.7 24.9 6.6 1.5 2.2 13.0 10.6 8.0 3.40 1,235 1.01 540 0.45 56.3 1.55 11.69 12.57 39.6 1.91 0.2 0.78 74.3

FY13 6,241 2,736 8,977 (3,742) 5,235 (1,204) 4,031 (810) 3,221 FY13 16,407 203,048 16.7 4,767 5,549 229,771 17,705 152,461 52,668 1,413 5,525 229,770 FY13 6.8 1.0 32.6 1.6 22.3 6.9 1.4 2.1 13.2 10.9 8.4 3.35 1,731 1.13 964 0.63 44.3 1.83 13.27 13.98 41.7 1.86 0.2 0.88 75.1

FY14E 7,617 3,429 11,047 (4,529) 6,517 (1,615) 4,903 (1,128) 3,775 FY14E 22,863 255,840 20.0 6,076 6,104 290,883 20,347 190,576 71,635 1,695 6,629 290,883 FY14E 6.6 1.0 37.6 1.5 19.2 7.2 1.3 2.1 12.3 10.2 7.7 3.33 2,335 1.22 1,237 0.65 47.0 1.80 14.61 15.36 41.0 1.74 0.2 0.94 74.5

FY15E 9,536 4,240 13,776

Advances growth vs NIMs


40 30 (%) 20 10 0 FY12 FY13 FY14E FY15E Advances growth (LHS) Net Interest Margin (RHS) 3.40 3.5 3.35 3.33 3.32 3.4 (%) 2.0 1.56 23 21 19 17 FY12 FY13 ROAE (LHS) 1.70 22.3 1.45 1.46 1.6 1.2 0.8 19.2 0.4 18.5 0.0 (%) 3.3 3.2 3.1 3.0

(5,648) 8,128 (1,842) 6,286 (1,509) 4,777 FY15E 28,860 322,358 20.0 6,119 6,714 364,052 23,677

Source: Company, Elara Securities Estimates

Asset quality
1.5 1.2 0.9 (%) 0.6 0.3 0.0 FY12 FY13 FY14E FY15E Net NPA (LHS) Gross NPA (LHS) Slippages (RHS) 1.55 1.83 1.80 1.80 1.9 1.8 1.7 1.6 1.5 1.4

240,125 90,260 2,034 7,955 364,052 FY15E 7.9 1.1 47.6 1.5 18.5 6.0 1.0 2.3 12.0 10.0 7.5 3.32 2,678 1.11 1,337 0.56 50.1 1.80 14.73 15.44 41.0 1.72 0.2 0.86 74.5

Source: Company, Elara Securities Estimates

Return ratios (%)


25 24.9

FY14E FY15E ROAA (RHS)

Source: Company, Elara Securities Estimates

Elara Securities (India) Private Limited

City Union Bank


Exhibit 1: Quarterly income statement
(INR mn) Interest on Advances Income on Investments Others Interest Income Interest expended Net Interest Income Trading gains Core Fee Other Non-interest income Total Non-interest income Employee expenses Other Operating expenses Total Operating expenses Operating profit Core operating profit Total Provisions PBT Core PBT Tax Net Profit EPS
Source: Company data

1QFY13 4,153 882 7 5,042 3,663 1,379 68 401 158 627 382 483 865 1,141 1,073 178 964 896 225 739 1.81

2QFY13 4,386 918 12 5,315 3,822 1,493 82 413 150 645 287 568 855 1,283 1,201 279 1,004 922 200 804 1.96

3QFY12 4,614 933 9 5,556 3,921 1,634 109 435 115 659 451 529 980 1,313 1,204 311 1,002 893 150 852 2.08

4QFY13 4,969 991 14 5,974 4,241 1,733 95 478 233 806 389 653 1,042 1,497 1,402 437 1,060 965 235 825 1.74

1QFY14 5,178 1,025 37 6,240 4,366 1,874 148 523 167 838 455 641 1,096 1,616 1,468 205 1,410 1,262 508 903 1.90

%YoY 24.7 16.3 406.1 23.8 19.2 35.8 117.6 30.4 5.9 33.7 19.1 32.8 26.8 41.5 36.7 15.6 46.3 40.9 125.6 22.2 5.2

%QoQ 4.2 3.5 158.3 4.4 2.9 8.1 55.8 9.4 (28.1) 4.1 17.2 5.2 7.9 4.7 (53.0) 33.1 30.8 116.0 9.5 9.5

Exhibit 2: Key ratios


(INR mn) NIM CAR Tier I ROA CD Ratio
Source: Company data

1QFY13 3.18 12.22 11.39 1.57 74.55

2QFY13 3.33 13.26 12.54 1.62 75.36

3QFY12 3.45 12.39 11.68 1.65 76.21

4QFY13 3.41 13.98 13.27 1.47 75.09

1QFY14 3.55 13.21 12.59 1.55 75.00

YoY bps 37 99 120 (2) 45

QoQ bps 14 (77) (68) 8 (8)

Exhibit 3: Asset quality


(INR mn) Gross NPA Net NPA Gross NPA, % Net NPA, % Calculated Provision cover, % Reported Provision cover, %
Source: Company data

1QFY13 1,372 636 1.07 0.50 53.6 75.5

2QFY13 1,661 807 1.24 0.60 51.4 70.8

3QFY12 1,787 914 1.23 0.63 48.8 70.0

4QFY13 1,731 964 1.13 0.63 44.3 71.0

1QFY14 1,921 970 1.25 0.63 49.5 71.0

%YoY 40.07 52.48 YoY bps 18 13 (411) (451)

%QoQ 10.99 0.61 QoQ bps 12 0 521 0

Exhibit 4: Balance sheet details


(INR mn) Net Advances CASA Deposits Term Deposits Total Deposits CASA , %
Source: Company data

1QFY13 127,200 29,911 140,709 170,620 17.5

2QFY13 133,300 31,970 144,916 176,886 18.1

3QFY12 145,127 31,975 158,466 190,441 16.8

4QFY13 152,461 33,992 169,056 203,048 16.7

1QFY14 153,877 33,181 171,984 205,165 16.2

%YoY 20.97 10.93 22.23 20.25

%QoQ (0.92) 2.44 (1.70) (1.03)

Elara Securities (India) Private Limited

Banking
3

(1.9)

City Union Bank

Coverage History
70 65 60 55 50 45 40 35 Dec-11 Aug-11 Aug-12 Dec-12 Feb-12 Feb-13 Oct-11 Jun-11 Apr-12 Jun-12 Oct-12 Apr-13 Jun-13 1 2 3 4 6

Not Covered

Covered

Date 1 2 3 4 5 6 7

Rating

Target Price INR60 INR62 INR67 INR70 INR70 INR70 INR65

Closing Price INR47 INR48 INR54 INR58 INR61 INR56 INR47

05-Mar-2012 Buy 21-May-2012 Buy 03-Aug-2012 Buy 05-Nov-2012 Buy 11-Feb-2013 Accumulate 22-May-2013 Buy 29-Jul-2013 Buy

Guide to Research Rating


BUY ACCUMULATE REDUCE SELL Absolute Return >+20% Absolute Return +5% to +20% Absolute Return -5% to +5% Absolute Return < -5%

Elara Securities (India) Private Limited

Elara Securities (India) Private Limited Disclosures & Confidentiality for non U.S. Investors
The Note is based on our estimates and is being provided to you (herein referred to as the Recipient) only for information purposes. The sole purpose of this Note is to provide preliminary information on the business activities of the company and the projected financial statements in order to assist the recipient in understanding / evaluating the Proposal. Nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved) and should consult its own advisors to determine the merits and risks of such an investment. Nevertheless, Elara or any of its affiliates is committed to provide independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Elara or any of its affiliates have not independently verified all the information given in this Note and expressly disclaim all liability for any errors and/or omissions, representations or warranties, expressed or implied as contained in this Note. The user assumes the entire risk of any use made of this information. Elara or any of its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for or solicit investment banking or other business from any company referred to in this Note. Each of these entities functions as a separate, distinct and independent of each other. This Note is strictly confidential and is being furnished to you solely for your information. This Note should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This Note is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Elara or any of its affiliates to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. Upon request, the Recipient will promptly return all material received from the company and/or the Advisors without retaining any copies thereof. The Information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This Information is subject to change without any prior notice. Elara or any of its affiliates reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Elara is under no obligation to update or keep the information current. Neither Elara nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. This Note should not be deemed an indication of the state of affairs of the company nor shall it constitute an indication that there has been no change in the business or state of affairs of the company since the date of publication of this Note. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Elara Securities (India) Private Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed to Elara Securities (India) Private Limited / the company.

Disclaimer for non U.S. Investors


The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Global Markets Research


5

Elara Securities (India) Private Limited Disclosures for U.S. Investors


The research analyst did not receive compensation from City Union Bank Limited. Elara Capital Inc.s affiliate did not manage an offering for City Union Bank Limited. Elara Capital Inc.s affiliate did not receive compensation from City Union Bank Limited in the last 12 months. Elara Capital Inc.s affiliate does not expect to receive compensation from City Union Bank Limited in the next 3 months.

Disclaimer for U.S. Investors


This material is based upon information that we consider to be reliable, but Elara Capital Inc. does not warrant its completeness, accuracy or adequacy and it should not be relied upon as such. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investors currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Certain statements in this report, including any financial projections, may constitute forward-looking statements. These forward-looking statements are not guarantees of future performance and are based on numerous current assumptions that are subject to significant uncertainties and contingencies. Actual future performance could differ materially from these forward-looking statements and financial information.

Elara Securities (India) Private Limited


India
Elara Securities (India) Pvt. Ltd. Indiabulls Finance Centre, Tower 3, 21st Floor, Senapati Bapat Marg, Elphinstone Road (West) Mumbai 400 013, India Tel : +91 22 3032 8500

Europe
Elara Capital Plc. 29 Marylebone Road, London NW1 5JX, United Kingdom

USA
Elara Securities Inc. 477 Madison Avenue, 220, New York, NY 10022, USA Tel :212-430-5870

Asia / Pacific
Elara Capital (Singapore) Pte.Ltd. 30 Raffles Place #20-03, Chevron House Singapore 048622

Tel : +4420 7486 9733

Tel : +65 6536 6267

Harendra Kumar
Sales Anuja Sarda Amit Mamgain Himani Singh Manan Thakkar Prashin Lalvani Saira Ansari Sales Trading & Dealing Manan Joshi Manoj Murarka Vishal Thakkar Research Aarthisundari Jayakumar Abhinav Bhandari Aliasgar Shakir Ashish Kejriwal Ashish Kumar Aashish Upganlawar Deepak Agrawala Henry Burrows Mohan Lal Mona Khetan, FRM Rakesh Kumar Ravi Sodah Sumant Kumar Pooja Sharma Stuart Murray

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harendra.kumar@elaracapital.com

+91 22 3032 8571

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Global Markets Research


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