BUY CMP 102.30 Target Price 120.00 CITY UNION BANK LTD. Result Update (PARENT BASIS): Q4 FY15 JULY 4 th, 2015 ISIN: INE491A01021 Stock Data Sector Banking BSE Code 532210 Face Value 1.00 52wk. High / Low (Rs.) 105.95/70.75 Volume (2wk. Avg ) 111000 Market Cap ( Rs in mn ) 61029.11 Annual Estimated Results (A*: Actual / E*: Estimated) Years FY14A FY15E FY16E T. Interest Earned 26988.56 28769.80 30323.37 GII 12114.72 13145.27 14135.55 Net Profit 3950.20 4338.22 4729.15 EPS 6.62 7.27 7.93 P/E 15.45 14.07 12.90 Shareholding Pattern (%) 1 Year Comparative Graph CITY UNION BANK LTD. S&P BSE SENSEX Highlights City Union Bank was incorporated on 31 st October, 1904 as The Kumbakonam Bank, headquartered in Chennai. Profit after Tax was Rs. 990.76 mn as against Rs. 833.47 mn in the corresponding quarter of the previous year, rose by 18.87% y-o-y. Total Interest Earned of the Bank rose by 8.30% y-o-y of Rs. 6881.77 million against Rs. 833.47 million in the corresponding quarter of the previous year. Net Interest Margin and Return on Asset for the 4 th quarter of FY15 stood at 3.40% & 1.45% respectively. Gross & Net NPA level stood at 1.86% & 1.30% respectively and Provision Coverage Ratio as at March 31, 2015 stood at 58%. The total Deposits as on 31 st Mar 2015, increased from Rs. 220168.92 mn to Rs. 240749.56 mn thereby registering a growth of 9 % y-o-y basis. The bank has recommended a dividend @ 110% i.e., Rs. 1.10/- per share on the face value of Rs. 1.00/- each for the Financial Year 2014-15. As on Mar 31, 2015 Advances portfolio registered a growth of 12% y-o-y basis to Rs. 179655.00 mn, from Rs. 160968.37 mn as on Mar 31, 2014. Total branches & ATM of Bank as on March, 2015 were 475 & 1086 respectively. Total Interest Earned and PAT of the company are expected to grow at a CAGR of 6% and 11% over 2014 to 2017E respectively. PEER GROUPS CMP MARKET CAP. EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) City Union Bank Ltd. 102.30 61029.11 6.62 15.45 2.26 110.00 Punjab National Bank 142.25 263810.70 16.51 8.62 0.72 165.00 Lakshmi Vilas Bank 89.95 16125.50 7.38 12.19 1.09 20.00 Karnataka Bank 149.55 28184.70 23.95 6.24 0.83 50.00
Quarterly Highlights (PARENT BASIS) Results updates- Q4 FY15 Rs. In million Mar-15 Mar-14 % CHNG Total Interest Earned 6881.77 6354.26 8.30 PAT 990.76 833.47 18.87 EPS 1.66 1.54 8.15 Net Interest Income 2046.62 1846.61 10.83 City Union Bank Ltd has achieved Total Interest Earned of Rs. 6881.77 million for the 4 th quarter of the financial year 2015 as against Rs. 6354.26 million in the corresponding quarter of the previous year. The bank has reported a net profit of Rs. 990.76 million against Rs. 833.47 million in the corresponding quarter of the previous year. The bank has reported an EPS of Rs. 1.66 for the 4 th quarter as against an EPS of Rs. 1.54 in the corresponding quarter of the previous year. Segment-wise Revenue (In Rs. Millions) Q4 FY15 Q4 FY14 CHNG % Treasury Operations 1790.50 1307.00 37 Corporate/wholesale 1875.60 1908.10 (2) Retail banking 4245.70 3953.60 7 other banking Op. 24.60 37.80 (35)
Asset Quality of the Bank Asset Quality (In mn) As on 31-03-15 As on 31-03-14 CHNG % Amount of Gross NPAs 3358.24 2930.64 15% Amount of Net NPAs 2327.92 1972.92 18% % of Gross NPAs 1.86 1.81 5 BP % of Net NPAs 1.30 1.23 7 BP Other updates: The Bank has inaugurated its 475 th branch on 30 th March, 2015 at Anna Salai located at Ponnamaravathy, Pudukkottai Dist, Tamil Nadu. The Bank s Balance Sheet size increased by 11.52% to RS. 278710.00 mn as on March 31, 2015 from Rs. 249930.00 mn as on March 31, 2014. The bank s net worth as on 31.03.2015 increased by 33% to Rs.26660.00 mn from Rs.20060.00 mn as on 31.03.2014. During the Financial Year -2014-15, the bank has opened 50 more branches and installed 121 ATMs. The total branches & ATM as on date is 475 and 1086 respectively. Advances and Deposits Total Advances of the bank recorded a growth of 12% and rose from Rs.160968.37 mn as on 31 st March, 2014 to Rs.179655.00 mn as on 31 st March, 2015. Similarly total Deposits of the Bank increased by 9% from Rs.220168.92 mn as on 31 st March, 2014 to Rs.240749.56 mn as on 31 st March, 2015. Asset Quality. Gross & Net NPA level stood at 1.86% & 1.30% respectively as on March 31, 2015. The Provision Coverage Ratio as at March 31, 2015 stood at 58%. Capital adequacy Ratio The bank has been maintaining Capital adequacy ratio well above the minimum levels prescribed by RBI. As on Mar 31 st 2015, the total CRAR of the bank stood at 16.52% of which Tier I CRAR was healthier at 16.03 %.
Bank Profile City Union Bank was incorporated on 31 st October, 1904 as The Kumbakonam Bank, headquartered in Chennai. The bank in the beginning preferred the role of a regional bank and slowly but steadily built for itself a place in the Delta District Thanjavur. The company set up its first branch at Mannargud on 24 th January 1930. After this the company started set up a series of branches at Nagapattinam, Sannanallur, Ayyampet, Tirukattupalli, Tiruvarur, Manapparai, Mayuram and Porayar within a period of 25 years. In the year 1957 the bank took over assets and liabilities of the Common Wealth Bank. Due to this five Branches of Common Wealth Bank located at Aduthurai, Kodavasal, Valangaiman, Jayankondacholopuram and Ariyalur were transferred to City Union Bank. In April 1965 two bank namely 'The City Forward Bank and 'The Union Bank were amalgamated and name of bank was changed to 'The Kumbakonam City Union Bank. In November 1965 CUBL set up its first branch at Madras. Due to this six more branches added to the existing one. City Union Bank provides three forms of banking are as follows: Personal Banking Corporate Banking NRI Banking Branch Net work: Total branches & ATM of Bank as on March, 2015 were 475 & 1086 respectively. During the current fiscal the Bank will expand the network by opening more branches and installing more ATMS.
Financial Highlights (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as on March 31 st, 2014-17E CAPITAL AND LIABILITIES CITY UNION BANK LIMITED FY14A FY15A FY16E FY17E Capital 542.74 596.57 596.57 596.57 Reserves and Surplus 19706.58 26358.65 30696.87 35426.02 Deposits 220168.92 240749.56 260009.52 277170.15 Borrowings 3049.84 1688.16 1384.29 1176.65 Other Liabilities and Provisions 6470.18 9318.33 11461.55 12836.93 TOTAL LIABILITIES 249938.26 278711.27 304148.80 327206.32 ASSETS Cash and Balances with Reserve Bank of India 10401.13 12335.07 14185.33 16171.28 Balances with Banks and Money at Call & Short notice 11395.03 13032.64 14596.56 16202.18 Investments 59535.57 63652.67 66835.30 69508.72 Advances 160968.37 179655 196239.24 210763.52 Fixed Assets 1829.52 2104.14 2377.68 2663.00 Other Assets 5808.64 7931.75 9914.69 11897.63 TOTAL ASSETS 249938.26 278711.27 304148.80 327206.32 Annual Profit & Loss Statement for the period from 2014 to 2017E Value(Rs.in.mn) FY14A FY15A FY16E FY17E Description 12m 12m 12m 12m Net Income 25459.33 26988.56 28769.80 30323.37 Other Income 3011.99 4041.04 4485.55 4947.57 Total income 28471.32 31029.60 33255.36 35270.94 Interest Expended -17865.44-18914.88-20110.09-21135.39 Gross Interest Income 10605.88 12114.72 13145.27 14135.55 Operating Expenses -4796.15-5079.34-5379.95-5624.99 Operating Profit 5809.73 7035.38 7765.31 8510.56 Provisions and Contingencies -1674.00-1825.19-2034.51-2246.79 Profit Before Tax 4135.73 5210.19 5730.80 6263.77 Tax -665.00-1260.00-1392.58-1534.62 Profit After Tax 3470.73 3950.19 4338.22 4729.15 Equity Capital 542.74 596.57 596.57 596.57 Reserves 19706.58 26358.65 30696.87 35426.02 Face Value (Rs.) 1.00 1.00 1.00 1.00 EPS 6.39 6.62 7.27 7.93
Quarterly Profit & Loss Statement for the period from 30 th Sept 2014 to 30 th June, 2015E Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15E Description 3m 3m 3m 3m Net Income 6828.46 6845.02 6881.77 6950.59 Other Income 901.52 977.87 1054.65 1233.94 Total income 7729.98 7822.89 7936.42 8184.53 Interest Expended -4766.31-4747.36-4835.15-4872.36 Net Interest Income 2963.67 3075.53 3101.27 3312.17 Operating Expenses -1235.19-1392.58-1204.21-1306.71 Operating Profit 1728.48 1682.95 1897.06 2005.46 Provisions and Contingencies -546.00-270.95-581.30-523.42 Profit Before Tax 1182.48 1412.00 1315.76 1482.03 Tax -245.00-385.00-325.00-355.69 Profit After Tax 937.48 1027.00 990.76 1126.34 Equity Capital 594.86 596.57 596.57 596.57 Face Value (Rs.) 1.00 1.00 1.00 1.00 EPS 1.58 1.72 1.66 1.89 Ratio Analysis Particulars FY14A FY15A FY16E FY17E EPS (Rs.) 6.39 6.62 7.27 7.93 Operating Profit Margin (%) 22.82% 26.07% 26.99% 28.07% PAT Margin (%) 13.63% 14.64% 15.08% 15.60% P/E Ratio (x) 16.00 15.45 14.07 12.90 ROE (%) 17.14% 14.65% 13.86% 13.13% ROCE (%) 2.39% 2.61% 2.65% 2.71% Debt-Equity Ratio 11.02 8.99 8.35 7.73 Book Value (Rs.) 37.31 45.18 52.46 60.38 P/BV (x) 2.74 2.26 1.95 1.69
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Outlook and Conclusion At the current market price of Rs.102.30, the stock P/E ratio is at 14.07 x FY16E and 12.90 x FY17E respectively. Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs. 7.27 and Rs. 7.93 respectively. Total Interest Earned and PAT of the company are expected to grow at a CAGR of 6% and 11% over 2014 to 2017E respectively. Debt-Equity ratio is expected at 8.35 x for FY16E and 7.73x for FY17E. Price to Book Value of the stock is expected to be at 1.95 x and 1.69 x for FY16E and FY17E respectively. We recommend BUY in this particular scrip with a target price of Rs. 120.00 for Medium to Long term investment. Industry Overview According to the Reserve Bank of India (RBI), the banking sector in India is sound, adequately capitalised and well-regulated. Indian financial and economic conditions are much better than in many other countries of the world. Credit, market and liquidity risk studies show that Indian banks are generally resilient and have withstood the global downturn well. With a sense of optimism slowly creeping in, the banking industry expects that 2015 will bring better growth prospects. This optimism stems from factors such as the Government working hard to revitalise the industrial growth in the country and the RBI initiating a number of measures that would go a long way in helping the banks to restructure. The recent announcements of RBI, it is felt, are a clear pointer to the future of the restructured domestic banking industry. Market Size The Indian banking sector is fragmented, with 46 commercial banks jostling for business with dozens of foreign banks as well as rural and co-operative lenders. State banks control 80 percent of the market, leaving relatively small shares for private rivals. At the end of February, 13.7 crore accounts had been opened under Pradhanmantri Jan Dhan Yojna (PMJDY) and 12.2 crore RuPay debit cards were issued. These new accounts have mobilised deposits of Rs 12,694 crore (US$ 2.01 billion). Standard & Poor s estimates that credit growth in India s banking sector would improve to 12-13 per cent in FY16 from less than 10% in the second half of CY14.
Investments/developments There have been many investments and developments in the Indian banking sector in the past few months. The United Economic Forum (UEF), an organisation that works to improve socio-economic status of the minority community in India has signed a memorandum of understanding (MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs from backward communities to set up businesses in Tamil Nadu. In a major boost for the infrastructure sector, as well as for banks financing long gestation projects, the RBI has extended its flexible refinancing and repayment option for long-term infrastructure projects to existing ones where the total exposure of lenders is more than Rs 5000.00 mn (US$ 78.98 million). Syndicate Bank is planning to open 300-500 branches in the next financial year RBI governor and European Central Bank President has signed an MoU on cooperation in central banking. The memorandum of understanding provides a framework for regular exchange of information, policy dialogue and technical cooperation between the two institutions. RBL Bank has announced that it would be the anchor investor in Trifecta Capital s Venture Debt Fund, the first alternative investment fund (AIF) of its kind in India with a commitment of Rs 500.00 mn (US$ 7.89 million). This move provides RBL Bank the opportunity to support the emerging venture debt market in India. Bandhan Financial Services Pvt. Ltd has raised Rs 16000.00 mn (US$ 252.69 million) from two international institutional investors to help convert its microfinance business into a full service bank. Bandhan was one of the two entities to get a banking licence in April 2014 along with infrastructure finance company IDFC Ltd. Yes Bank Ltd has signed an MoU with the US government s development finance institution Overseas Private Investment Corp (OPIC) to explore US$ 220 million of financing to lend to micro, small and medium enterprises (MSMEs) in India. Reliance Industries Limited (RIL) has said that it has applied for a Payments Bank licence, where the company will be the promoter and State Bank of India will be its joint venture partner with an equity investment of up to 30 per cent. The RBI has allowed bonds issued by multilateral financial institutions like World Bank Group, the Asian Development Bank and the African Development Bank in India as eligible securities for interbank borrowing. The move will further develop the corporate bonds market, RBI said in a notification. The Competition Commission of India (CCI) has cleared the merger of ING Vysya Bank with Kotak Mahindra Bank, which would create the country's fourth largest private sector lender.
Government Initiatives There have been a lot of developments in the Indian banking sector. The Government has announced a capital infusion of Rs 69900.00 mn (US$ 1.1 billion) in nine state run banks, including State Bank of India (SBI) and Punjab National Bank (PNB), but based on new efficiency parameters such as return on assets and return on equity. In a statement, the finance ministry said, This year, the Government of India has adopted new criteria in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position." The Union cabinet has approved the establishment of the US$ 100 billion New Development Bank (NDB) envisaged by the five-member BRICS group as well as the BRICS contingent reserve arrangement (CRA). The RBI has decided to allow nominated banks to import gold, including coins, on a consignment basis, extending its clarification issued in November 2014, which had eased certain categories of gold imports. To help Micro Small and Medium Enterprises (MSME), RBI has permitted setting up of an exchange-based trading platform to facilitate financing of bills raised by such small entities to corporate and other buyers, including government departments and PSUs. Road Ahead The Indian economy is now on the threshold of a major transformation, with expectations of policy initiatives being implemented. Positive business sentiments, improved consumer confidence and more controlled inflation should help boost the economic growth. Higher spending on infrastructure, speedy implementation of projects and continuation of reforms will provide further impetus to growth. All this translates into a strong growth for the banking sector too, as rapidly growing business turn to banks for their credit needs, thus helping them grow. Also, with the advancements in technology, mobile and internet banking services have come to the fore. Banks in India are focusing more and more to provide better services to their clients and have also started upgrading their technology infrastructure, which can help improve customer experience as well as give banks a competitive edge. Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-less credit and debit cards in the market soon. The cards, which use near field communication (NFC) mechanism, will allow customers to transact without having to insert or swipe.
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