City Union Bank Ltd. share price target

We recently interacted with senior management and select business heads of City Union Bank (CUBK). The bank reiterated its growth guidance of 12–14% YoY for FY25 and acceleration to 15–16% YoY for FY26.

We upgrade City Union Bank (CUBK) to BUY with an unchanged target price of INR 200, valuing the stock at ~1.45x FY26E ABV, broadly in-line with forward RoAs. Post ~17% stock price correction in the last month, CUBK’s valuation at ~1.1x forward book is near its lowest in the last three years – juxtaposed with an improved growth outlook and NIM resilience.

Operational performance was healthy led by strong loan growth/ fee income, recoveries from W/O accounts and contained opex growth. Net Interest Income at Rs. 588 crore (marginally below estimates) was up 14% y-o-y/ 1% q-o-q.

We maintain our BUY recommendation on the stock.

Growth visibility improves; asset quality remains pristine

Focused Growth Through MSME Lending

We revise our rating to BUY from HOLD earlier backed by an improved growth outlook and valuation comfort.

City Union Bank (CUBK) reported better than our expected set of results with Q2FY25 PAT of INR 2.85bn (9% beat; RoA of 1.59%) aided by improved asset/earnings quality.

Earnings grew by a mere 2% y-o-y on the back of higher provisions although operating profits rose ~11% y-o-y.

Better margins and non-interest income drove City Union Bank’s 13% q/q increase in core operating profits. Overall profitability remained strong. Ahead, we expect net slippages to remain negative since most of the stress has been recognised.

Setting the tone for year ahead

We revise our rating to HOLD from BUY earlier.

Mixed earnings with moderate Balance Sheet growth

Earnings grew by 16% y-o-y, led by lower provisions, although operating profits fell by ~10% y-o-y.
Total credit cost stood at 34 bps of average advances (annualized) versus 29 bps q-o-q and 142 bps y-o-y.

We initiate coverage on City Union Bank (CUB) with a “BUY” recommendation
and a target price of Rs 205, valuing the bank at 1.5x of its FY26E Adj. BV.