Strong quarter yet again; growth momentum sustains
City Union Bank (CUBK) delivered a strong operating performance, with advances/deposits growing 26%/23% YoY (+8%/+11% QoQ), supported by continued traction in secured segments. NII grew 31% YoY/ +4% QoQ, aided by robust loan growth while NIM remained stable at ~3.6% (-3bps QoQ). Non-interest income remained healthy (+9% JMFe)- driven by strong fee income growth (+16% YoY/13% QoQ), leading to operating profit growth of +31% YoY/+13% QoQ, (+9% JMFe). Credit cost increased 10bps QoQ to 0.76% due to higher standard asset provisioning. While gross slippages declined 6bps QoQ, net slippages increased +10bps QoQ. PAT grew 25% YoY/8% QoQ, with RoA/RoE improving to ~1.57%/~13.8%. Management reiterated guidance of mid- to high-teen loan growth (2–3% above industry/system), stable NIMs (±5bps), and FY27 exit RoA of ~1.65–1.67%. We forecast a loan CAGR of ~18% during FY26-28E with an avg. RoE of ~14% during FY27/28E. Maintain BUY with a revised target price of INR 320 (vs INR 280 earlier), driven by a multiple re-rating to 1.7x FY28E P/B (vs 1.5x earlier), and an upward revision to FY27E/FY28E EPS estimate by ~5%/7%.
◼ Growth momentum sustains; secured portfolio remains key driver: Advances continued strong growth momentum rising +26%/+8% YoY/QoQ to ~INR 659bn while deposits grew +23%/+11% to ~INR 783bn, resulting in CD ratio of 84.1% (-223bps QoQ). Incremental loan growth was led by Agri loans (+23% YoY), Commercial Real estate (+35% YoY), MSME (+15% YoY), and non- agri gold (+62% YoY). Growth continues to be structurally tilted toward secured lending, with management maintaining focus on MSME, gold loans, and secured retail segment. Capital adequacy remains strong at ~21.9%, with a comfortable CD ratio of ~84%, indicating adequate balance sheet liquidity to sustain incremental credit expansion. Management reiterated guidance of mid–high teens’ loan growth, ~2–3% above system. We expect ~18%/20% loan/deposit CAGR during FY26-28E.
◼ Margins hold steady: Profitability remained resilient, supported by stable margins and operating leverage. NII grew +31% YoY/+4% QoQ while calc. NIMs remained steady at 3.6% (-3bps QoQ). Management guided for NIMs staying stable in FY27 within a ±5bps range from current levels. Fee income growth remained strong at +16%/+13% YoY/QoQ. Operating expenses increased +21% YoY but remained largely in line with estimates (+1% JMFe), and management guided for opex growth of ~15–18% in FY27, driven by continued branch expansion. PAT growth was strong at +25%YoY/+8% QoQ, resulting in healthy return ratios – ROA/ROE of ~1.6%/14%. We expect an avg. RoA/RoE of ~1.5%/14% during FY27/28E.
◼ Asset quality strengthens: Asset quality trends remained encouraging with GNPA/NNPA moderating 23bps/9bps sequentially to multi-year lows, with PCR improving ~25bps QoQ to 64.7%. Credit cost increased to 0.76% (+10bps QoQ), largely due to higher standard asset provisioning of INR 300mn (vs. INR 220mn in Q3, NIL in 4Q25). The bank indicated no visible stress from geopolitical factors and does not expect any material provisioning impact from the transition to ECL norms. We model in an avg. credit cost of ~70bps over FY27E/28E.
◼ Valuation and JMF view: CUBK offers i) balanced 17-18% business growth; ii) stable 3.5% NIM; iii) low credit cost with improving PCR; and iv) 1.5%+ sustainable RoA with strong capital (>20% CAR). These factors support consistent earnings compounding with limited risk. We expect ~18% loan CAGR during FY26-28E with an avg. RoE of ~14% during FY27/28E and value the bank at 1.7x FY28 P/BV, with a revised target price of INR 320. Maintain BUY.
