Target: ₹325
CMP: ₹275.70
City Union Bank reported strong Q4FY26 with loan growth at fresh highs, stable NIM/RoA and a multi-year improvement in GNPA/SMA2 – summing up to be a commendable farewell quarter for the incumbent MD and CEO. During his tenure (FY11-26), deposits, loans and PAT jumped 6-7x each, while net-worth and market cap surged 10-11x.
Loan growth jumped to 26 per cent in Q4FY26 year on year, the highest in the last 13 years, led by gold loans. The management reiterated that the bank will likely continue to grow in mid-teens (2-3 per cent above system credit growth) driven by focus segments such as MSME, gold and secured retail business. Further, the management mentioned MSME would continue to dominate at 55-60 per cent, followed by gold loans at 30-35 per cent and secured retail would act as an incremental growth lever. The management mentioned that the bank would try to limit gold loan mix to about 30 per cent (29 per cent currently), while adding that this is not a rigid limit.
The bank guided for stable NIM and 10-15 bps of RoA improvement to 1.65-1.7 per cent by Q4FY27 (vs 1.56 per cent in Q4FY26). The bank highlighted its conservativism on limiting its per gram gold price – detached from the jump in market prices. While noting macro uncertainties, City Union Bank pointed to current SMA 2 (0.7 per cent) and SMA 0+1+2 being at multi-year lows. We retain BUY; TP intact at ₹325, basis about 1.8x FY28E ABV. Risk: Execution challenges and gold price volatility.