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

CSB is a private sector lender headquartered in Thrissur, Kerala, and is the state’s oldest private sector bank. Currently, the bank has 609 branches (including three service branches and three asset recovery offices) and 468 ATMs across 18 states and two union territories. With the exception of three service locations and three asset recovery locations, there are 603 locations across the country. Currently, the bank has more than 1.5 million customers and the CASA portfolio accounts for 29.17 percent of total deposits.

On the NSE, shares of CSB Bank hit a 52-week low from 178.50 on June 17, 2022 and a 52-week high of 374.00 on July 5, 2021, indicating that the stock is at the current level of 180 is trading at a 51 percent discount from its 52-week high and 1.96 percent above its 52-week low. Edelweiss Broking Limited has issued a buy recommendation on the shares of CSB Bank, with a target price of INR 340, which represents a potential upside of 89 percent from the last traded price of 180.

The brokerage has said: “Management aims to grow the asset book at 1.5x industry growth. It has forecast bank lending growth of 14-16% over the next three years, with credit growth GDP of 7-8% MSME growth and business recovery in the next 2-3 quarters are likely to boost credit growth in the near term Management believes Services, Consumption, EPC, Housing, CV&CE and Infrastructure will drive growth in the advance book. In addition, management expects corporate lending book to shift from overseas to the domestic banking system as foreign borrowing rates rise.”

According to Edelweiss Broking Ltd: “Management is internally targeting 20%+ credit growth over the next three years, but this will accelerate after FY27 as the bank will have robust technology and a strong liability franchise to support credit growth. In addition, management plans to enter the credit card business through a partnership and introduce more retail products in due course. In the short term, the gold loan portfolio will remain the growth engine for the bank. In the long run, however, the bank’s book will be more diversified. The share of gold loans will decrease from the current 40% to 25%; the retail book will represent 25%, the SME will represent 20-22% and the corporate book will make up the rest. In terms of inorganic growth, management believes it may be worth acquiring a portfolio or specific book to complement the planned organic growth.”

The brokerage has also claimed that “the bank is looking to build robust partnerships that would help generate a sustainable stream of fee income. At present, the bank has approximately 1.5 million customers; of these two-thirds of the base adds no value.” In addition, CSB plans to acquire quality clients through multiple partnerships, which would result in increased cross-selling opportunities. Technology investment is likely to remain high in the coming quarters, coupled with the aggressive opening and affiliate recruitment (employee numbers expected to nearly double in the next 2-3 years) is expected to keep business spending high in the near term.”

“At CMP, the stock trades at 0.9x FY24E ABV. The bank has industry-leading margins, strong return ratios and robust asset quality. With credit expected to grow close to 20% in FY22–24E, we expect a revaluation. As such, we maintain our ‘BUY’ recommendation with a TP of INR 340/share, implying an 89% increase,” the brokerage said.

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

Subscribe to Mint Newsletters

Please enter a valid email address

Thank you for subscribing to our newsletter.

Leave a Comment

Your email address will not be published.