City Union Bank: Target Price Set at Rs 355 by Anand Rathi

City Union Bank Reports Strong Q4FY26 Performance

City Union Bank delivered a robust performance in the fourth quarter of fiscal year 2026, with its balance sheet growth outpacing the system. The bank's loan growth stood at 26.5% year-over-year, while deposits increased by 23.3% year-over-year. This sustained growth is a testament to the bank's stable net interest margin and healthy asset quality, with net slippages remaining at approximately 30 basis points.

The credit growth acceleration was driven by the bank's gold loan segment, which experienced significant growth. However, excluding gold loans, the bank's loan growth stood at approximately 16% year-over-year, aligning with the overall system growth. The bank's stable margin, strong fee income, and controlled operational expenses contributed to a 32.8% year-over-year growth in core operating profit.

Key Highlights of Q4FY26 Performance

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The bank's management has guided for loan growth to be higher than the system, with a target of 200-300 basis points above the system average. This is supported by the steady momentum in the bank's core micro, small, and medium enterprises (MSME) book. With stable margins, healthy fee income, and benign asset quality, the bank's earnings are expected to remain steady over the medium-term. The return on assets (RoA) is likely to sustain above 1.5% over fiscal years 2027 and 2028.

Recommendation

We maintain a BUY rating on City Union Bank with a 12-month target price of Rs 355. The valuation is based on 2 times the bank's fiscal year 2028 estimated price-to-asset-based value.

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