3 Reasons Why City Union Bank Share Price is Falling

City Union Bank share price, known for being rangebound and stable for years, has recently experienced a significant decline. The stock crashed over 15% in a single day earlier this week on 13 February 2023.

City Union Bank primarily caters to the MSME, retail, and the wholesale segment. The bank also helps provide both short and long term loans to the agricultural sector.

Over the years, the bank has built a strong track record and has a diversified asset profile.

Also, the bank has been paying dividends consistently for over a century.

That is why investors were surprised and concerned about the reasons behind this unexpected drop in its share price.

Let's explore the possible factors contributing to the fall in City Union Bank's share price.

#1 Weak quarterly results

In the first two quarters of financial year 2022-23, a lot of companies came out with good quarterly results.

This has been a trend for years now. The first two quarters are strong for some companies while the next two quarters remain muted.

When a company or a bank reports lower than expected quarterly results, the market punishes them even if it has reported a substantial profit.

For City Union Bank, this is possibly the situation right now...

Over the weekend, City Union Bank reported a net profit of Rs 2.2 billion (bn) for the third quarter of FY23. If compared sequentially, profit is down 21%.

For the quarter under review, provisions were up 120% sequentially, which dragged down the profit after tax.

The bank's net interest income (NII) also fell sequentially while net interest margin (NIM) fell to 3.9%, a 21 basis point cut compared to the September 2022 quarter.

On a YoY basis, profit saw a growth of 11% while operating profit also surged 34.6%.

So one reason behind the weakness in the stock could be weak sequential growth.

#2 Weak guidance for FY23

During the quarter under review, City Union Bank witnessed muted investment cycle, which in turn resulted in lower credit off-take.

Because of this, the company's management said that the overall credit growth will likely remain below the guidance range of 15-18%.

In the quarter under review, top banking companies in India registered growth but City Union Bank saw its net interest margins fall.

While top banks by growth recovered smartly post Covid, City Union Bank recovered at a slower pace on asset quality metrics.

The slow growth in loans, questionable asset quality, along with muted performance compared to other banks has remained a concern for City Union Bank in this quarter.

#3 RBI's report on divergence

This is possibly the most important reason why the stock has come under negative sentiment lately...

Last year in December 2022, the Reserve Bank of India (RBI) found divergence in City Union Bank's additional gross non performing assets (NPAs) amounting to Rs 2.6 bn.

RBI conducted an on-site inspection between October 2022 and November 2022.

Shares of City Union Bank crashed 9% on the day this news came out.

How City Union Bank share price has moved recently

City Union Bank share price opened the day down by 0.7% at Rs 133 against its previous close of Rs 134.8.

As the session progressed, the stock recovered losses and is currently trading 1.6% higher.

In the past five days, the stock is down 15% while in 2023 so far, City Union Bank shares have plunged 25%.

With yesterday's correction, the stock has erased all its gains of the past year and it currently trades near the same level as a year ago.

Take a look at the table below for a comparative analysis.

Comparative Analysis

Company	City Union Bank	DCB Bank	Karnataka Bank	Karur Vyasa Bank	Equitas SFB
ROE (%)	12.2	7.8	8.0	9.3	7.4
ROCE (%)	11.1	8.1	9.4	11.1	9.2
Latest EPS (Rs)	12.5	14.1	30.7	12.2	2.5
TTM PE (x)	10.7	7.9	4.6	8.5	24.3
TTM Price to book (x)	1.4	0.8	0.6	1.1	2.3
Dividend yield (%)	0.7	0.9	2.8	1.5	0.0
Industry PE	19.6
Industry PB	2.7

Data Source: Ace Equity

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

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...