City Union Bank Ltd's Q1FY19 standalone net profit rises 15.2% yoy to Rs161.65cr : Beats Estimates

The bank’s standalone NII stood at Rs374.80cr, up 9.5% yoy and 1.86% qoq.

Aug 09, 2018 03:08 IST India Infoline Research Team

City Union Bank Ltd Q1FY19

Standalone Results Q1FY19: ( cr)

Q1FY19 YoY (%)
NII 374.80 9.5
GNPA (%) 3 -1
Provisions 77.76 [33.3]
Net Profit (adjusted) 161.65 15.2
***GNPA change in bps is on qoq basis
City Union Bank's Q1FY19 revenue has improved by 6% yoy to Rs1,018.6cr. The bank’s NII for the quarter came at Rs374.8cr as against Rs342.4cr yoy, which is a growth of 9.5%. The bank has reported net profit of Rs161.6cr, which is 6% above our estimates as against Rs140.3cr reported in corresponding quarter last year. The beat on estimates was due to lower provisions. Its GNPA for Q1FY19 stood at 3.02% against 3.03% qoq, which has decreased by 1bps qoq. NNPA for the quarter were flat qoq to 1.7%.
  • Loan growth of 17% yoy in 1QFY19 was driven by retail loans and wholesale trader loans.
  • Loan growth was driven by retail loans (+22% yoy) and wholesale trader loans (+20% yoy). Growth in the two largest segments of MSME of agriculture loans stood at 17% and 13% respectively.
  • Provisions for the quarter has declined by 33.3% yoy to 77.7cr.
  • CASA ratio has been stable at ~24% over the last five quarters.
  • CUBK added Rs126cr in slippages into GNPLs in the quarter (15% qoq decline). NPA ratios were stable sequentially, while slippage ratio declined to 2.1% of opening loans in 1QFY19.
  • Management expects a slippage ratio of 1.75- 2.0% for FY19E (2.5% for FY18)
  • The PCR for the quarter stood at 65%.
  • Margins compressed 23bps yoy and 12bps QoQ to 4.2% in 1QFY19 due to pressure on lending yields (down 93bps yoy), excess liquidity and funding through market borrowings which come at a higher cost NIM for the quarter came at 4.24% down 12 bps qoq.
Key takeaways from the earnings call
  • Margins in the past 4-6 quarters have trended above the long term average by 50-70bps. Historically, margins have been in the range of 3.4-3.7% and management expects downward pressure going forward. NIM as of 1QFY19 stood at 4.2%.
  • Of the total loans, 93-95% are MCLR linked.
  • The bank currently has ~Rs1,500cr of surplus liquidity and hence has not raised deposit rates. Management expects increase in MCLR by ~25bps in August 2018 and there would also be an increase in deposit rates, but to a lesser extent.
  • Management expects muted treasury income in FY19E on account of unfavourable yield movement in government securities. Therefore, better NPL management and lower provisions will drive performance in FY19E.
  • CUBK added 2 branches in 1QFY19. The bank plans to add 50-75 branches in FY19E (including BC branches), implying acceleration in branch addition over the coming quarters.
  • Management has taken an enabling resolution for capital raising through a QIP to the tune of Rs500cr. This is done as a standard practice; the resolution will be used only if required.
  • Management has guided for loan growth of 18-20% and Slippage ratio of 1.75-2% for FY19E.
  • CUBK has had a mixed experience with stress in the SME segment. It has used the RBI dispensation to recognize MSME NPLs on a 180- dpd basis for 4 accounts (Rs19cr) and does not expect to use this dispensation for other accounts.
  • The bank has two stressed accounts with an exposure in excess of Rs50cr – one paper mill and one educational institution. The combined exposure in these two accounts stood at ~Rs150cr. 
  • SMA-2 loan book has been constant over the last 4 quarters at ~4% of loans.

Technical View:

City Union Bank Ltd is currently trading at Rs. 181.15, up by 7.55 points or 4.35% from its previous closing of Rs. 173.60 on the BSE.
The scrip opened at Rs. 173.50 and has touched a high and low of Rs. 192.50 and Rs. 173 respectively. So far 18,66,927 (NSE+BSE) shares were traded on the counter. The stock is currently trading below its 50 DMA.

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