May 18, 2021
S__tock___ TALES
Stock Tales are concise, holistic stock reports across wider spectrum of sectors. Updates will not be periodical but based on significant events or change in price. CSB Bank (CSBBAN)
CMP: | 274 Target: | 330 (20%) Target Period: 12 months BUY May 18, 2021 Rejuvenated business strategy to aid healthy growth CSB Bank is a south based private sector bank with Kerala contributing ~50% of business. Gold & SME are key lending segments forming ~40% & Particulars
15% of loan mix. Post a substantial deterioration in asset quality and resultant weak business performances, Fairfax India Holding was permitted Particulars Amount to acquire ~51% stake in FY19. The bank then changed its strategy in Market Capitalisation | 4753 crore various aspects leading to an organisational transformation that led to an GNPA (Q4FY21) 2.7 improved performance, which is expected to continue ahead. NNPA (Q4FY21) 1.2 Stock Tales Investment rationale NIM (Q4FY21) 5.4% Meticulous choice of lending segments: CSB increased focus on gold loans 52 week H/L 290 /112 and exited a few risky SME segments leading to proportion of gold loan Net Worth | 2180 Crore increasing from 26% in FY19 to 40% in FY21; enabling generation of higher Face value | 10 yield. Improvement in CD ratio, low market share in gold loan and selective DII Holding (%) 9.3 SME lending is seen aiding business growth as well as yields. FII Holding (%) 5.3 Liability franchisee supporting margins: Healthy liability franchise with granular retail deposits, loyal customer base (~25% of NRI deposits) enabled growth in CASA to ~32% in FY21. Continued focus on NRI deposit, re-orientation of branches to focus on liabilities rather than asset & branch Price performance expansion would keep cost of fund in check, thereby aiding margins. 350 20000 300 Strengthening top management: The bank hired industry veterans like, 250 15000 200 Pralay Mondal (ex-Axis Bank), Neeraj Dhawan (ex-Yes Bank), Shyam Mani 10000 150 (ex-Yes Bank) thereby strengthening its executive team. Further, addressing 100 5000 the perennial human resource issue, the bank has reduced the number of 50 0 0 IBA employees from ~60% pre-IPO to 41% now (~1600 IBA employee out of ~3900). It is expected to further decline to ~33% in FY22E, FY23E. Feb-20 Feb-21 Nov-20 Aug-20 May-20 May-21
Historical NPA cleaned; Covid impact limited: Elevated provisioning and CSB Bank Nifty high write-offs undertaken in FY17-20, led to a decline in GNPA from 7.2% in FY17 to 2.7% in FY21. In FY21, slippages rose amid pandemic though
GNPA at 2.7% and restructuring at ~45 bps remains relatively better. Key Highlights Research Equity Retail
Substantial proportion of secured book, selective SME lending & lower LGD – Sharp improvement in financials in gold loan provide comfort on asset quality and earnings trajectory ahead. owing to key strategic decisions Key risk Value stock at ~2.2x FY23E ABV, Continued impact of pandemic could dent business performance Assign BUY rating with TP of | 330 Regional concentration of business remains a risk Volatility in gold price could impact financial performance
Valuation Research Analyst Securities ICICI Backed by strong promoter (FairFax), renewed business strategy and Kajal Gandhi adequate capital base, the bank is well placed to deliver sustainable 20%+ [email protected] growth. Improving CD ratio coupled with healthy liability franchise would aid Vishal Narnolia margins, growth in fee income and steady asset quality (owing to gold loan [email protected] and selective SME lending) offer multiple levers for improvement in return Sameer.Sawant ratios. We expect PAT to grow at 44% CAGR in FY21-23E to | 451 crore; [email protected] leading to RoE/ RoA of 16.6%/ 1.4% by FY23E. We assign a BUY rating to the stock with a target price of | 330 per share, valuing at ~2.2x FY23E ABV. Key Financial Summary | crore FY19 FY20 FY21 FY22E FY23E CAGR (FY21-23E) NII 440 592 941 1165 1407 22% PPP 13 281 613 706 839 17% PAT -197 13 218 333 451 44% ABV (|) 138.5 91.9 107.3 124.2 147.9 P/E NA 373.6 21.8 14.3 10.6 P/ABV 2.0 3.0 2.6 2.2 1.9 RoA (1.2) 0.1 1.0 1.3 1.4 RoE (17.0) 0.8 10.5 14.2 16.6
s Source: Company, ICICI Direct Research Stock Tales | CSB Bank ICICI Direct Research
Business story in charts
Exhibit 1: Increasing proportion of gold loan…. Exhibit 12: ….coupled with healthy liabilities franchise….
100 30000.0 28,379 40.0 90 23.7 22.0 21.0 27.2 26.7 35.0 80 25000.0 23,306 70 30.0 22.0 21.0 22.0 19,141 60 25.7 23.3 20000.0 15,791 25.0 14,691 15,124
(%) 50 % 14.5 17.0 18.0 15000.0 20.0 40 19.0 21.3 crore | 15.0 30 10000.0 20 39.8 40.0 39.0 10.0 31.0 10 25.8 5000.0 5.0 0 FY19 FY20 FY21 FY22E FY23E 0.0 0.0 FY18 FY19 FY20 FY21 FY22E FY23E
Gold Loans SME Retail Corporate and Others Total Deposits CASA %
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 3: ...enable substantial margin improvement Exhibit 4: Growth & controlled opex leads to fall in C/I ratio
6.0 120.0 5.1 5.0 5.1 97.7 5.0 100.0 85.4 3.8 4.0 80.0 3.1 65.5
2.8 54.3 54.6 54.2 % % 3.0 60.0
2.0 40.0
1.0 20.0
0.0 0.0 FY18 FY19 FY20 FY21 FY22E FY23E FY18 FY19 FY20 FY21 FY22E FY23E
NIM % Cost to income %
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 5: Multiple levers for RoE/RoA improvement Exhibit 6: Asset quality outlook remains prudent
18.0 16.6 9.0 7.9 16.0 8.0 14.2 14.0 7.0
12.0 10.5 6.0 4.9
10.0 5.0 4.5 % 8.0% 4.0 3.5 2.7 6.0 3.0 2.3 2.5 2.3 1.9 4.0 2.0 1.2 1.1 1.0 1.4 2.0 0.8 1.0 1.3 1.0 0.1 0.0 0.0 FY20 FY21 FY22E FY23E FY18 FY19 FY20 FY21 FY22E FY23E
RoE% RoA% GNPA % NNPA %
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
ICICI Securities |Retail Research 2
Stock Tales | CSB Bank ICICI Direct Research
Financial summary
Exhibit 7: Profit and loss statement | crore Exhibit 8: Key Ratios (| Crore) FY19 FY20 FY21 FY22E FY23E FY19 FY20 FY21 FY22E FY23E Interest Earned 1,347.5 1,509.9 1,872.3 2,320.9 2,839.3 Valuation Interest Expended 907.6 917.6 930.9 1,155.6 1,432.7 No. of shares (crore) 8.6 17.4 17.4 17.4 17.4 EPS (|) -23.0 0.7 12.6 19.2 26.0 Net Interest Income 440.0 592.3 941.4 1,165.4 1,406.6 DPS (|) 0.0 0.0 0.0 0.6 0.8 Growth (%) 14.3 34.6 58.9 23.8 20.7 BV (|) 166.5 104.4 117.0 135.6 160.8 Non Interest Income 135.9 221.6 400.8 388.8 427.7 ABV (|) 138.5 91.9 107.3 124.2 147.9 Net Income 575.9 813.9 1,342.2 1,554.2 1,834.3 P/E -11.9 373.6 21.8 14.3 10.6 Employee cost 384.4 286.9 496.2 575.6 673.5 P/BV 1.6 2.6 2.3 2.0 1.7 Other operating Exp. 178.1 246.4 232.8 272.3 321.3 P/ABV 2.0 3.0 2.6 2.2 1.9 Operating Income 13.4 280.6 613.2 706.2 839.5 Yields & Margins (%) Provisions 313.5 146.6 320.7 259.9 234.6 Net Interest Margins 3.1 3.8 5.0 5.1 5.1 PBT (300.1) 134.0 292.6 446.3 604.8 Avg. cost on funds 6.1 5.8 5.0 5.1 5.2 Taxes (102.7) 121.3 74.2 113.8 154.2 Yield on average advances 9.7 10.6 10.7 11.1 11.2 Quality and Efficiency (%) Net Profit (197.4) 12.7 218.4 332.5 450.6 Cost to income ratio 97.7 65.5 54.3 54.6 54.2 Growth (%) NA NA 1,616.3 52.2 35.5 Credit/Deposit ratio 70.2 72.0 75.4 77.4 78.2 EPS (|) (23.0) 0.7 12.6 19.2 26.0
GNPA % 4.9 3.5 2.7 2.5 2.3 Source: Company, ICICI Direct Research NNPA % 2.3 1.9 1.2 1.1 1.0 ROE -17.0 0.8 10.5 14.2 16.6 ROA -1.2 0.1 1.0 1.3 1.4
Source: Company, ICICI Direct Research
Exhibit 9: Balance sheet | crore Exhibit 10: Growth trajectory (%) (| Crore) FY19 FY20 FY21 FY22E FY23E (% growth) FY19 FY20 FY21 FY22E FY23E Sources of Funds Total assets 6.6 11.5 23.7 22.0 21.9 Capital 86.0 173.5 173.5 173.5 173.5 Advances 13.7 7.1 27.0 25.0 23.0 Reserves and Surplus 1345.7 1787.2 2006.7 2329.2 2766.3 Deposit 2.9 4.4 21.2 21.8 21.8 Networth 1431.7 1960.7 2180.2 2502.8 2939.9 Total Income 12.9 41.3 64.9 15.8 18.0 Deposits 15123.9 15790.7 19140.0 23306.2 28379.3 Net interest income 14.3 34.6 58.9 23.8 20.7 Borrowings 0.0 794.0 1425.9 1443.8 1553.9 Operating expenses 29.0 (5.2) 36.7 16.3 17.3 Other Liabilities & Provisions 355.6 318.9 591.2 1221.4 1837.2 Operating profit (82.0) 2,000.4 118.6 15.2 18.9 Total 16911.2 18864.2 23337.4 28474.2 34710.3 Net profit NA NA 1,616.3 52.2 35.5 Net worth 61.0 36.9 11.2 14.8 17.5 Application of Funds EPS NA NA 1,616.0 52.2 35.5
Fixed Assets 217.7 228.3 269.5 288.4 308.5 Source: Company, ICICI Direct Research Investments 4027.6 5359.8 6126.0 6991.9 8371.9 Advances 10615.2 11366.4 14438.1 18047.7 22198.6 Other Assets 1076.9 970.4 789.7 1748.0 2128.5 Cash with RBI & call money 973.6 939.3 1714.1 1398.4 1702.8 Total 16911.2 18864.2 23337.4 28474.2 34710.3
Source: Company, ICICI Direct Research
ICICI Securities |Retail Research 3
Stock Tales | CSB Bank ICICI Direct Research
RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
ICICI Securities |Retail Research 4
Stock Tales | CSB Bank ICICI Direct Research
ANALYST CERTIFICATION
I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Sameer Sawant, MBA Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
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