Page 4 - VP-APRIL 2016

fundamental Company Overview
pick
City Union Bank Ltd, the oldest private sector
City Union Bank Ltd. bank in India, was founded on October 31, 1904
and is headquartered at Kumbakonam, Tamil
Accumulate Target Price Rs 116 Nadu, India. The bank in the beginning preferred
the role of a regional bank. The first branch of
Value Parameters 532210 the Bank was opened at Mannargudi on 24th
BSE Code CUB January 1930. Presently the bank has pan India
NSE Symbol Rs 97 presence & operates through 500 branches, 1302
CMP (As on 4th Apr, 2016) Rs 1 ATM & employee strength of 4,437. The bank
Face Value has greater presence in Tamil Nadu about 50%.
52 Week High/Low 106/77 The main focus of the Bank is lending to MSME,
Market Cap (Rs cr) 5,821 Retail/Wholesale Trade with granular asset profile
ABV (Rs) (FY17E) 58 including providing short term and long term loans
P/ABV ratio (x) (FY17E) 1.5 to agricultural sector.

Shareholding Pattern % (Dec’ 15) Investment Rationale

¢ The bank has diversified loan book with greater
exposure to the MSME sector. The small-ticket
loans along with the shrinking financial health
of the PSU banks are likely to lead the road
ahead for the bank. We expect the bank to grow
at a CAGR of 10.5% for FY15-17E.

¢ The bank stays strong on capital adequacy. The
total capital ratio (Basel ll) for the bank in FY13
stood at 13.98 & grew to 16.59 in FY15. CAR
as per Basel lll rose from 15.01 in FY14 to 16.52
in FY15. We expect the bank to stay strong on
its capital adequacy for FY15-17E with a slight
drop in FY16.

¢ The bank manages the costs efficiently. In FY15
the cost to income ratio dropped down to
42.8 from 44.1 in FY14. This year (9M) too, the
ratio has dropped down to 40.23. This is likely
due to the decelerating growth in branches &
employee strength.

¢ The bank continues to keep its NIM healthy.
Net interest income for the bank has been on a
consistent rise with NIM above 3% for nearly a
decade.

Valuations

We have valued the bank at its P/ABV multiple
of 2.0 (x) to its FY17E adjusted book value per
share. We have arrived at a target of Rs 116 per
share at which the valuations look reasonable.
At CMP of Rs 97 the stock is trading at the FY17E
P/E and P/ABV of 9.8 & 1.7 respectively and has
“Accumulate”rating on the stock.

4 ARIHANT CAPITAL ¡ APRIL 2016