City Union Bank shares tank 10% today to hover near one-year low level; here's why

Shares of City Union Bank Ltd fell sharply in Monday's trade despite reporting a 4.31 per cent, year-on-year (YoY), jump in the fourth-quarter (Q4 FY23) net profit. The Tamil Nadu-headquartered private sector bank's March 2023 profit came at Rs 218 crore as against Rs 2.09 crore in the same period a year ago. The lender earned Rs 1,228 crore as interest income in Q4 FY23 compared to Rs 1,050 crore in the March 2022 quarter. The bank's gross non-performing assets (NPAs) and net NPAs slipped to 4.37 per cent and 2.36 per cent, respectively.

However, City Union Bank's shares today dived 9.90 per cent to hit a day low of Rs 125.60 over its previous close of Rs 139.40. At today's low price, the stock traded just 4.28 per cent above its 52-week low of Rs 120.45, a level seen on March 29, 2023.

Prabhudas Lilladher has downgraded its rating from 'Buy' to 'Accumulate' with a one-year target price of Rs 160 from Rs 190 earlier.

"We trim NIM (Net interest margin) by 18 basis points (bps) to 3.50 per cent and reduce multiple from 1.8x to 1.4x due to growth/pricing pressures emanating from higher competition," the brokerage stated.

"CUB saw a weak quarter as core PPoP missed our estimates by 8.5 per cent due lower NII/NIM. However, asset quality was the silver lining as GNPA/OTR reduced by 25/117 bps QoQ. For FY24E, bank guided for 12-15 per cent loan growth that would be back-ended while it expects reported NIM to decline YoY from 3.90 per cent to 3.70 per cent," it mentioned.

"SME credit model of CUB is challenged due to competitive intensity as yields fell by 13 bps YoY in FY23 compared to 100 bps rise for private banks although asset quality is expected to improve over FY23-25E and valuation is favourable at 1.2x on FY25E ABV," Prabhudas further said.

On the technical setup, support on the counter could be seen at Rs 126. Around 8.64 lakh shares changed hands today on BSE, which was more than three times higher compared to the two-week average volume of 2.56 lakh shares. The company's turnover came at Rs 11.01 crore, commanding a market capitalisation (m-cao) of Rs 9,325.54 crore.

"Average Q4 FY23 results have led to a sharp fall in City Union Bank stock price with strong resistance now at Rs 134.50. A daily close below support of Rs 126 could lead to targets of Rs 120-112 in the near term," said AR Ramachandran from Tips2trades.

Meanwhile, Indian equity benchmarks extended their gains in today's deals amid positive global cues. The domestic indices surged today, led by gains in banks, financial and consumer stocks.

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