Shares of City Union Bank surged 13.33% to hit an intraday high of ₹170.85 per share on Tuesday, October 22, 2024, following the announcement of strong financial results for the second quarter of FY25 (Q2FY25). The private lender’s healthy performance has boosted investor confidence, leading to a sharp rise in the stock price.
The bank posted a 1.6% year-on-year (YoY) increase in net profit for Q2FY25, reaching ₹285.2 crore compared to ₹280.6 crore in the same quarter of FY24 (Q2FY24). This positive outcome, coupled with improvements in key financial metrics, has garnered attention from market analysts and brokerage firms, leading to an optimistic outlook for the stock.
Strong financial performance in Q2FY25
City Union Bank’s Net Interest Income (NII), a crucial indicator of profitability for banks, grew 8.2% YoY to ₹582.5 crore in Q2FY25, compared to ₹538.4 crore in Q2FY24. NII represents the difference between the interest income a bank earns on its loans and the interest it pays on its deposits. The bank’s higher NII reflects robust loan growth and efficient management of its interest expenses.
On the asset quality front, the bank showed significant improvement. Gross Non-Performing Assets (GNPA) dropped to 3.54% in Q2FY25, down from 3.88% in Q1FY25, signaling better loan performance and reduced defaults. Net Non-Performing Assets (NNPA) also improved to 1.62% in Q2FY25, from 1.87% in the previous quarter.
In absolute terms, the GNPA value decreased to ₹1,725.5 crore in Q2FY25, compared to ₹1,806.44 crore in Q1FY25. Similarly, NNPA reduced to ₹775.02 crore, down from ₹853.49 crore in Q1FY25, underscoring the bank’s success in addressing bad loans and maintaining healthy asset quality.
Net interest margin and capital adequacy
Another notable achievement for City Union Bank in Q2FY25 was the improvement in its Net Interest Margin (NIM). The bank’s NIM rose to 3.67% from 3.54% in Q1FY25. NIM is a key metric that measures the profitability of a bank’s lending operations. The increase in NIM was driven by higher yields from recent interest rate hikes and a reduction in the cost of funds (CoF), indicating the bank’s ability to generate more profit from its core lending activities.
Additionally, City Union Bank’s capital adequacy ratio stood at an impressive 22.98%, reflecting a well-capitalized balance sheet. This strong capital position provides a cushion for the bank against potential risks and positions it well for future growth.
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Brokerages maintain positive outlook
The strong performance in Q2FY25 has prompted leading brokerage firms to raise their earnings estimates for City Union Bank. According to JM Financial, the bank’s profit after tax (PAT) for the quarter came in at ₹290 crore, exceeding their expectations by 2%. JM Financial attributed the positive results to higher NIM and strong loan growth. The firm raised its earnings estimates for the bank by 7% for FY25 and 3% for FY26 and upgraded its rating on the stock to ‘Buy’ with a target price of ₹185 per share, based on a valuation of 1.3x FY26 estimated book value per share (BVPS).
International brokerage firm Investec also maintained its ‘Buy’ rating, setting a higher target price of ₹200 per share. Macquarie echoed similar sentiments, maintaining an ‘Outperform’ rating with a target price of ₹185 per share. Analysts across the board are optimistic about the bank’s ability to sustain growth, driven by its strong asset quality, well-capitalized balance sheet, and focus on higher-yielding secured products.
Conclusion
City Union Bank’s Q2FY25 results have reinforced investor confidence, leading to a significant rise in its stock price. The bank’s solid financial performance, improving asset quality, and enhanced profitability metrics such as NII and NIM have positioned it for sustained growth. Brokerages remain upbeat about the bank’s future, with several upgrading their ratings and raising target prices.
As of 10:45 AM on October 22, City Union Bank’s shares were trading 12.97% higher at ₹170.30 per share. In contrast, the BSE Sensex was trading 0.35% lower at 80,867.76 levels, highlighting the bank’s strong market performance amid a generally subdued broader market.
With a robust capital adequacy ratio, growing profitability, and positive sentiment from brokerages, City Union Bank appears well-positioned for continued success in the upcoming quarters.
