This banking stock hits 52-week-low, brokerage sees 89% potential upside


CSB is a private sector lender with its headquarters in Thrissur, Kerala, and is the state’s oldest private sector bank. Currently, the bank has 609 branches (three of which are service branches and three of which are asset recovery branches) and 468 ATMs scattered over 18 states and two union territories. Except for three service branches and three asset recovery branches, there are 603 branches around the country. Currently, the bank has over 1.5 million customers, and the CASA portfolio accounts for 29.17 per cent of total deposits.

On the NSE, CSB Bank shares reached a 52-week low of 178.50 on 17th June 2022 and a 52-week high of 374.00 on 5th July 2021, indicating that the stock at the current level of 180 is trading at a 51 per cent discount from its 52-week high and 1.96 per cent above its 52-week low. Edelweiss Broking Limited has assigned a buy rating to CSB Bank’s shares, with a target price of INR 340, implying an 89 per cent potential upside from the last traded price of 180.

The brokerage has said “The management is targeting to grow the asset book at 1.5x of industry growth. It has projected banking credit growth of 14–16% for the next three years, with GDP growth projection of 7–8%. MSME growth and return of corporate growth in the next 2–3 quarters are likely to boost credit growth in the near term. The management believes that Services, Consumption, EPC, Housing, CV&CE and Infrastructure will drive growth in the advances book. In addition, the management is expecting the corporate borrowing book to shift from overseas to the domestic banking system as the overseas borrowing rate is inching up.”

According to Edelweiss Broking Ltd “The management is internally targeting 20%+ credit growth for the next three years, but this will accelerate after FY27 as the bank will have robust technology in place and a strong liability franchise to support the credit growth. Moreover, the management is planning to get into the credit card business through a partnership and introduce more retail products in due course. In the short term, the gold loan book will remain the growth driver for the bank. In the long term, however, the bank’s book will be more diversified. The share of gold loans will reduce from the current 40% to 25%; the retail book will represent 25%, SME will account for 20–22% and the corporate book will constitute the rest. In terms of inorganic growth, the management believes it may be worthwhile to acquire a portfolio or a specific book in order to complement the organic growth as planned.”

The brokerage has also claimed that “The bank seeks to enter into robust partnerships that would help generate a sustainable stream of fee income. At present, the bank has about 1.5mn customers; of this, two-third of the base is not adding value on the wealth income front. In addition, CSB intends to acquire quality customers through multiple tie-ups, which would result in increased cross-selling opportunities. Investments in technology are likely to remain high for the next few quarters. This, coupled with aggressive branch opening and hiring (employee count is expected to almost double over the next 2–3 years), is expected to keep operating expenditure elevated in the near term.”

“At CMP, the stock is trading at 0.9x FY24E ABV. The bank has industry leading margins, strong return ratios and robust asset quality. With anticipated credit growth of nearly 20% during FY22–24E, we expect a rerating. As such, we maintain our ‘BUY’ recommendation with TP of INR340/share, implying an 89% upside,” the brokerage has said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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