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Buy City Union Bank; target of Rs 210: Karvy

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Broking house, Karvy Stock Broking is bullish on City Union Bank and has recommended buy rating on the stock with a target of Rs 210.

Karvy Stock Broking report on City Union Bank:

City Union Bank has announced a plan to raise Rs.4 billion equity capital in FY2008 to fund its credit growth going forward. We estimate that the fund would be raised at premium to forward adjusted book value at Rs.200 per share. After the proposed fund raising plan the bank’s book value and adjusted book value would be Rs.184 and 177 per share.

The bank foresees to grow its advances and deposits at 30% and 35% CAGR from FY2008-11 to Rs.100 billion and Rs.150 billion respectively. The bank has been expanding its branch network aggressively; at present the bank has 158 branches and by the end of calendar year 2007 the bank is planning to open 23 more branches taking the total number of branches to 181.

The bank has been reporting strong performance over the period; we expect that the bank would sustain higher net interest margin (NIM) on the back of high yielding credit portfolio and containment in cost of deposits. The bank’s better acquaintance and understanding of different segments of clients has caused the non-performing assets to reduce.

Due to focus on high yielding advances and expansion in other areas the bank has been able to post strong growth. The bank is well poised to leverage on growth in southern India. We estimate the bank’s adjusted book value and book value for FY2008 to be Rs.154 and Rs.167 respectively. We retain our BUY rating on the stock with a price target of Rs 210.

Source : Moneycontrol.com

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