City Union Bank: Buy Recommendation Issued by Prabhudas Lilladher with a Target Price of Rs 310

City Union Bank Sees Strong Quarter, Maintains Growth Guidance

City Union Bank (CUB) has reported a good quarter, driven by a core profit per share (PPoP) beat of 8.6%, which was led by better fees and two recoveries. The recoveries allowed for the creation of buffer provisions worth INR 500 million. The bank's loan growth was higher at 9.7% quarter-over-quarter (QoQ), while net interest income (NII) grew by 4.5%, indicating back-ended growth.

Key Highlights

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The bank has guided for mid-to-high teens growth, with a continued focus on micro, small, and medium enterprises (MSME), gold, and secured retail. Prabhudas Lilladher maintains its loan compound annual growth rate (CAGR) estimate of 17% over the fiscal years 2026-2028.

Revised liquidity coverage ratio (LCR) norms are expected to free up INR 35-40 billion of liquidity, which could provide further loan-to-deposit ratio (LDR) leeway, cushioning net interest margin (NIM).

Outlook and Recommendation

There is no material change in core profit after tax (PAT), and City Union Bank is expected to continue delivering core return on assets (RoA) of 1.45-1.50%. The research firm maintains an earnings per share (EPS) multiple of 1.7x on fiscal year 2028 adjusted book value (ABV) and recommends a target price of INR 310. The recommendation remains 'BUY'.

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