Emkay Global Financial Initiates Coverage on City Union Bank with a Buy Rating, Target Price of Rs 350
City Union Bank Posts Multi-Quarter High Margin and Strong Core-Operating Profit Growth
City Union Bank (CUBK) has reported a significant acceleration in credit growth, with a year-over-year (YoY) increase of approximately 26.5% and a quarter-over-quarter (QoQ) increase of 8% in the fourth quarter. This growth, coupled with steady loan yields, has helped the bank achieve a multi-quarter high margin of 3.9%. As a result, the bank has delivered a healthy core-operating profit growth of 33% YoY.
Despite slightly higher provisions than expected, which were driven by the bank's continued asset write-offs and the building of a standard asset provision buffer, City Union Bank reported a strong profit after tax (PAT) of Rs3.6 billion and a return on assets (RoA) of 1.6%. Looking ahead, the bank expects to sustain high growth driven by micro, small, and medium enterprises (MSME) and secured retail loans, including gold, while maintaining largely stable margins.
Earnings Estimates Revised
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Emkay Global Financial's research report has revised City Union Bank's earnings estimates by 4-6% for fiscal year 2027-28E. The report also expects the bank to report a strong RoA of approximately 1.5-1.6% and a return on equity (RoE) of 14-15% over fiscal year 2027-29E. This, combined with a strong capital buffer and improving retail orientation, is expected to support the bank's premium valuation.
Management Succession
The bank has undergone a management succession, with Kamakodi stepping down as Managing Director and Chief Executive Officer (MD & CEO) and passing on responsibilities to Vijay Anandh to ensure a smooth transition. The board has sought Vijay Anandh's willingness to continue in a non-executive role, with any future decision contingent on regulatory comfort and approval.
Recommendation
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Emkay Global Financial retains a BUY rating and a target price of Rs350, valuing the bank at 1.9 times fiscal year 2028E adjusted book value.
| Financial Indicator | Q4 FY26 | Q4 FY27E | Change |
|---|---|---|---|
| Credit Growth (YoY) | 20.5% | 26.5% | 6% |
| Credit Growth (QoQ) | 5% | 8% | 3% |
| Margin | 3.3% | 3.9% | 0.6% |
| Core-Operating Profit Growth (YoY) | 22% | 33% | 11% |
Investor Takeaway
Investors should consider City Union Bank for its strong growth prospects and stable margins.
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