Why City Union Bank Share Price is Rising

Amidst the ordinary, there's always one that breaks the mold.

This quote reflects how, in a sea of similarities, there's always one that stands out. In the banking sector, City Union Bank is that exception. Allow us to explain.

City Union Bank is a private-sector bank, well-known for its deep roots in South India, primarily serving small and medium-sized enterprises (SMEs). The bank offers a range of financial services, from personal banking to business loans and treasury management.

Over the years, it has established itself as a trusted institution with a focus on traditional banking services. City Union Bank has built its reputation by consistently meeting the needs of both individuals and businesses while expanding its reach across the country.

While most banking stocks have faced downward pressure due to weak quarterly earnings, City Union Bank has broken away from this pattern.

Yesterday, its share price rallied by 11%, setting it apart from others in the sector.

Let's now dive into the bank's quarterly results to understand why City Union Bank share price is rising.

Strong Quarterly Results

City Union Bank reported solid financial performance in its Q2 FY25 results. While many banks faced challenges, City Union Bank stood out, delivering growth in key financial metrics. Let's take a closer look at the details.

The bank's gross profit for Q2 FY25 increased to Rs 4.3 billion (bn), an 11% rise from Rs 3.9 bn in Q2 FY24. This growth can be attributed to improved business expansion. Profit after tax (PAT) in Q2 FY25 rose slightly to Rs 2.9 bn, compared to Rs 2.8 bn in Q2 FY24.

City Union Bank's net interest income (NII) for Q2 FY25 reached Rs 5.8 bn, an 8% growth from Rs 5.4 bn in Q2 FY24. The growth in NII can be attributed to increased lending activity and stable interest margins, which boosted the bank's earnings.

Amid rising concerns about asset quality in the banking sector, City Union Bank managed to lower its gross non-performing assets (GNPA) to 3.5% in Q2 FY25, down from 4.7% in Q2 FY24.

Net NPAs also improved to 1.6% from 2.3% in the same period last year. The drop in NPAs reflects the bank's stronger asset management practices, leading to improved financial health.

Following these quarterly results, several brokerages have upgraded their targets for City Union Bank. Experts point to the bank's favorable risk/reward ratio and potential growth.

The bank's earnings matched expectations due to strong loan growth and higher fee income. However, higher provisioning has offset some of the gains, as the bank focuses on strengthening its provision coverage ratio (PCR).

Positive results, including improved asset quality and rising profits, have attracted investor attention. The bank's ability to defy sector-wide struggles has led to a rally in its share price, up 11% after the quarterly results were declared.

What Next?

City Union Bank is focusing heavily on digital lending and expanding its product portfolio to strengthen its future growth trajectory. The bank has already seen initial results from its digital lending initiatives, particularly in the unsecured MSME segment.

The bank plans to gradually scale up its digital offerings to secure retail lending, including housing loans and micro-loans against property. These segments will be key areas of growth in the coming quarters.

Moreover, City Union Bank's asset quality is expected to improve further. The management is confident in maintaining reduced slippages and strong recoveries, which should support overall profitability.

This is reflected in their consistent reduction in gross and net NPA percentages. With strong recoveries, the bank's provision requirement is expected to decrease, positively impacting net profit margins.

On the operational front, the bank anticipates a temporary strain on its cost-to-income ratio due to upfront investments in technology and digital infrastructure.

The management has indicated that this process will take around 4-6 quarters, with profitability gains expected to materialise after that period.

How City Union Bank Share Price has Performed Recently

In the past five days, City Union Bank share price has rallied 8.7%. In the last month, it is down 1.2%.

In 2024, so far its share price has surged 10.4%. Additionally, in the last one year its share price has rallied 28.9%.

The stock touched its 52-week high of Rs 176.7 on 1 August 2024 and a 52-week low of Rs 125.4 on 14 March 2024.

About City Union Bank

City Union Bank is one of the oldest private sector banks in India, with its headquarters in Kumbakonam, Tamil Nadu.

Around 90% of the total branches of City Union Bank are located in South India.

To know more, check out City Union Bank's financial factsheet and its latest quarterly results.

You can also compare City Union Bank with its peers:

City Union Bank vs Karur Vyasa Bank

City Union Bank vs IDFC First Bank

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...