BackFairfax-backed private bank posts strong performance since listing. Brokerage suggests 'Buy' in stock
The bank has recently announced its provisional data for Q3FY23 where it posted strong double-digit growth in deposits and advances. Gold loan book witnessed robust growth in Q3.
PremiumFairfax Financial-backed private banker, CSB Bank is said to have been reporting strong performance since its market debut in December 2019. The bank has recently announced its provisional data for Q3FY23 where it posted strong double-digit growth in deposits and advances. Gold loan book witnessed robust growth in Q3. Going ahead, brokerage LKP Securities has suggested buying in this Kerala-based bank with a target price of ₹313.
On Friday, CSB Bank shares closed at ₹243.55 apiece down by 3.08% on BSE. Overall, the weekly performance of January 2-6 closed on a flat note on Dalal Street. However, compared to the previous week, CSB Bank stock gained by over 2.5%.
From its 1-year low of ₹178 apiece, the stock is up by nearly 37% on D-Street. As of January 6, 2023, the bank's market cap is over ₹4,225 crore.
Last week, CSB Bank announced its provisional data for the third quarter of FY23. As per the regulatory filing, CSB Bank posted gross advances of ₹18,643.32 crore p by 25.74% yoy, while total deposits stood at ₹22,664.02 crore up by 18.93% yoy.
In Q3FY23, as per the provisional data, CSB Bank's advances against gold & gold jewellery stood at ₹8,772.48 crore rising by a whopping 50.81% yoy. Under deposits, the bank's CASA and term deposits stood at ₹7,125.74 crore and ₹15,538.27 crore up by 8.18% yoy and 24.62% yoy.
CSB Bank will announce its overall financial result for the December 2022 quarter on January 30, 2023.
In its research report dated January 6, LKP Securities said, "CSB Bank has been reporting strong performance since listing. A strong loan growth driven by Gold loans and comfortable CDR is evident."
Highlighting further, the brokerage revealed that post-listing, CSB Bank's advance growth remains strong and above the growth rate of the banking ecosystem.
On the advances and deposits performance in Q3FY23, LKP's note said the share of the Gold loan portfolio has increased from 36% in 2QFY22 to 46% in recent quarters. Additionally, the CDR of 83% provides further room for credit off-take. Moreover, the deposit traction remained strong at 18.9% YoY. Nonetheless, MSME loan growth was tepid, the management maintains its stance of it being the biggest growth driver in the non–gold book during this calendar year.
Going forward, LKP expects retail products in the bank’s pipeline are expected to be launched by end of this financial year.
Brokerage's note further added, "We expect the loan book to grow at a rate of around 20% in FY23E and FY24E. The gold loan share is expected to increase to half of the gross loans and then gradually come down as some of the other products start picking up. Management expects the bank’s advances to grow at 1.5x the industry growth rate. Furthermore, the management targets 100 branches to be added every year for the next five years and simultaneously invests in technology for customer acquisition."
On valuation, the brokerage's note said the bank is well equipped to report superlative return ratios (FY24E ROA/ROE of 2.1%/18.7%) driven by better operating performance, balance sheet growth, and improving asset quality. It added, "We value the bank at 1.5xFY23E Adj. BVPS and arrive at a price target of ₹313.."
Taking into consideration the January 6th closing price on BSE and LKP's target price, then CSB Bank has a potential 28.5% upside on the exchange.
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