LKP Securities expects this bank stock to jump over 28% in one year

Despite this fall, domestic brokerage house LKP Securities is bullish on this bank stock and sees it rising 313 over the next 12 months, indicating an increase of over 28 percent.

However, it’s important to note that the target price is still not above the lender’s all-time high price.

The brokerage stock is bullish on healthy credit growth driven by gold loans, strong asset quality, high yields, low credit cost and strong financial performance.

“CSB Bank has been reporting strong performance since listing. A robust loan growth driven by gold loans and a comfortable Cash Deposit Ratio (CDR) is evident. Credit quality recovery (Q2% v/s 7.9 in FY18) 1.7 per cent) in percentage terms. Driven by lower delinquency and faster recovery. A healthy capital position post IPO is likely to continue the momentum,” the brokerage said.

stock price trend

The stock was listed on the exchanges in December 2019 at a 57 per cent premium to its issue price ( 195) on 307. The stock is down 20 percent since listing. However, it is still trading at about 25 per cent premium to its issue price.

The stock has declined 6 percent in the last 1 year. However, after a 9 per cent rise in December, it has gained more than 5 per cent so far in January. The stock has made recent gains after releasing good provisional data for Q3FY23.

provisional data

As per its latest provisional data, the lender reported strong double-digit growth in deposits and advances. Its gold loan book also saw strong growth in the third quarter.

As per regulatory filing, CSB Bank posted gross advances 18,643.32 crore, up 25.74 percent YoY, while total deposits stood at 22,664.02 crore, up 18.93 percent YoY.

In Q3FY23, as per provisional data, CSB Bank’s advances against gold and gold jewelery stood at 8,772.48 crore, growing by 50.81 percent YoY. The bank’s CASA and term deposits remained under deposits 7,125.74 crore and 15,538.27 crore, up 8.18 percent YoY and 24.62 percent YoY, respectively.

In Q2FY23, the bank reported 2 percent growth in net profit 120.5 crore and an 8 percent jump in total income 600.12 crore as compared to Q2FY22.

investment logic

Healthy Credit Growth: According to the brokerage, post listing, the advance growth of the bank remained strong and was above the growth rate of the banking ecosystem. As per the bank’s reported provisional numbers for 3QFY23, advances grew by 25.7 per cent against an industry growth of 18 per cent. The gold loan book has also seen strong growth and accounted for 74 per cent of the incremental sequential loan growth, the brokerage noted. The share of gold loan portfolio has increased from 36 per cent in Q2FY22 to 46 per cent in recent quarters. Additionally, a CDR of 83 per cent provides further scope for credit off-take. Besides this, deposit traction remained strong at 18.9 per cent YoY, the brokerage said. While LKP said that MSME credit growth was sluggish, the management maintains its stance of being the biggest growth driver in the non-gold book during this calendar year.

strong asset quality: Bank has made tremendous improvement on the asset quality front; The GNPA (gross non-performing assets) ratio declined to 1.7 per cent in the previous quarter from a peak of 7.9 per cent in FY18. LKP believes that the bank has enough cushion to maintain a low credit cost trajectory in the coming quarters, as they hold a strong contingency buffer 110 crores. It anticipates further improvement in GNPA on the back of recovery and upgrades and expects it to stand at 1.5 per cent by FY2024E, with PCR improving to 69 per cent (from 66 per cent currently).

High yields and low credit cost to drive the return ratio: The brokerage further informed that the lender is enjoying better margins on the back of higher yield on assets of 10.8 per cent. In addition, credit costs will remain low due to provision for write-backs and additional contingency buffers. Currently, investments in technology and distribution are substantial and cost-to-income is likely to come down as the investments begin to pay off, noted LKP.

evaluation and outlook

As per the brokerage, the bank is well-positioned to report excellent return ratios (FY24E ROA/ROE 2.1 per cent/18.7 per cent) driven by improved operating performance, balance sheet growth and improving asset quality.

Factoring in double-digit advance growth, stable NIM and lower credit cost, the bank could post 22 per cent PAT growth in the current fiscal, predicted the brokerage. The attractive valuations (1.2xFY24E Adj. BVPS) reward the stock with FY24E RoA at 2.1 per cent and RoE at 18.7 per cent.

The brokerage also informed that retail products in the bank’s pipeline are expected to be launched by the end of this financial year. It expects the loan book to grow at around 20 per cent in FY23E and FY24E. LKP said the share of gold loans is expected to grow to half of the gross loans and then gradually come down as some other products start growing.

It further said that the management expects the bank’s advances to grow at 1.5 times the industry growth rate. Besides this, the management aims to add 100 branches every year for the next five years as well as invest in technology for customer acquisition.

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Disclaimer: The views and recommendations expressed above are those of the individual analysts or broking companies and not MintGenie.