CSB Bank Ltd.
Target: Rs. 290 CMP Rs. 234 (FY23 P/Bv 1.6X) BUY
Index Details CSB Bank Ltd (CSB), established in 1920, has a predominantly strong Sensex 51,047 presence in south India with a network of 454 branches. Over the period of Nifty 15,131 FY17 to FY20, the bank undertook aggressive provisioning to recognise the bad loans and hence, its bottom line was in the red. As part of the
revival plan, the bank had raised funds from a public offering (made in Industry Banking December 2019) to shore up its capital.
Scrip Details For a better part of FY21, the bank had been extremely selective on its Mkt Cap (Rs Cr) 4,151 lending portfolio and focused largely on expanding its Gold Loan business (which is 100% collateralised), leveraging the relaxation in the RBI’s LTV O/S Share (Cr) 17.35 regulation. This not only helped revive profitability, but the loan book grew 52 Wk H/L (Rs) 269.9/ 95.0 21.6% YoY to Rs. 13,137 crores (9MFY21). Div Yield (%) 0.00 To sustain the recently discovered growth trend, the management has FVPS (Rs) 10.00 chalked out a retail driven growth strategy and a number of key appointments have been made. Mr. Pralay Mondal (ex- Axis Bank) has
taken over as the president of the Retail & SME portfolio. We expect this Shareholding Pattern new team to grow the retail (excluding Gold Loan) and SME books by Shareholder % CAGR of 44.6% and 17.7% to Rs. 7,283.2 crore and Rs. 3,914 crores, respectively, for the period FY20-FY23. The Gold Loan portfolio is expected Promoters 49.73 to sustain a CAGR of 33.9% to Rs. 8,456.6 crores by FY23. The corporate Institutional 11.11 lending book is expected to remain flat at Rs. 3,179.5 crores. Overall, the Public 39.16 advances are expected to grow at a CAGR of 26.2% to Rs. 22,833.3 crores Total 100.00 over the same period.
With the contribution of the high yielding retail and SME books set to
CSB Bank vs. Sensex STOCKPOINTER increase, we expect NIMs to expand by 106 bps to 4.4% by FY23. 400 60,000 300 40,000 On the resource mobilization front, we expect the bank to deploy a 200 judicious mix of Deposits (19.4% CAGR increase to Rs. 26,862.8 crores, + 20,000 100 162 bps in CASA to 32%) and borrowings (98.5% CAGR increase to Rs. 0 - 6,209.7 crores).
Jun-20
Sep-20 Dec-20
Dec-19 On account of the aggressive growth plans of adding ~500 new branches Mar-20 over the next 4 years and hiring in the new verticals, we expect the cost to CSB Sensex income ratio to remain elevated at 51.8% for FY23 (50.4% in Q3FY21).
Key Financials (in ₹ crores)
Net Int Non-Int EPS BVPS RoAA RoAE P/E P/BV PPOP PAT Income Income ₹ ₹ (%) (%) (x) (x)
FY19 440.0 135.9 13.4 (197.4) (23.0) 90.8 (1.2) (23.7) -10.4 3.8 FY20 592.3 221.6 280.6 12.7 0.7 113.0 0.1 0.9 324.6 2.4
FY21E 863.2 413.9 594.8 248.8 14.3 127.3 1.2 11.9 16.6 2.2 FY22E 1,109.3 453.8 734.5 299.3 17.3 144.6 1.1 12.7 13.8 2.0 FY23E 1,362.4 582.3 937.0 490.7 28.3 172.9 1.5 17.8 8.4 1.6
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With a more granular lending strategy being followed, we expect the recently lowered NPL levels to sustain. Accordingly, we forecast GNPL and NNPL of 3.2% and 2.1%, respectively, for FY23.
The money raised during the IPO of December 2019 should comfortably suffice the CAR requirements over the forecast period.
The return ratios, ROE and ROA are set to expand to 16.4% and 1.3% by FY23. At the current CMP of Rs. 234, the stock is attractively valued at 1.6X FY23 P/ Adj. BV. We initiate coverage with a BUY for a price target of Rs.290 (2.0X FY23 P/Adj. BV) representing an upside of 24% over the next 12 months.
CSB Valuation Trend
450 400 350 300 250 200 150 100 50 0
Adj Price 0.72x 1.2x 1.68x 2.16x 2.64x
Source: Ventura Research
CSB Bank attractively valued vis-à-vis similar sized private banks
25.0 Bandhan Bank 20.0 CSB Bank Ltd AU SFB 15.0 City Union
10.0 Bank Ltd FY23 ROE FY23 IDFC First 5.0 DCB Bank Ujjivan SFB Bank 0.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 FY23 P/BV to 2yrs BV CAGR Source: Ventura Research
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Advance, Deposits & CASA
30,000 (Rs. in Cr.) 90% 80% 25,000 70% 20,000 60% 50% 15,000 40% 10,000 30% 20% 5,000 10% - 0% FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Advances Deposits CASA Credit to Deposit Ratio (RHS)
1,600 Profitability and margins 5% (Rs. in Cr.) 1,400 1,200 4% 1,000 3% 800 600 2% 400 200 1% - 0% -200 -400 -1% FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
NII PPOP PAT NIM (RHS)
Asset Quality 1,000 10% (Rs. in Cr.) 800 8%
600 6%
400 4%
200 2%
- 0% FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E GNPA NNPA GNPA Ratio (RHS) NNPA Ratio (RHS)
Source: Company Reports, Ace Equity and Ventura Research
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Peer comparison with similar sized banks
Advances City Union Bank Ltd DCB Bank Bandhan Bank South Indian Bank Ujjivan SFB CSB Bank Ltd 1,40,000 1,20,000 (Rs. In Cr) 1,00,000 80,000 60,000 40,000 20,000 -
FY18 FY19 FY20 FY21E FY22E FY23E
NIMs
City Union Bank Ltd DCB Bank Bandhan Bank South Indian Bank Ujjivan SFB CSB Bank Ltd 12.0 10.0 8.0 6.0 4.0 2.0 -
FY18 FY19 FY20 FY21E FY22E FY23E
GNPA
City Union Bank Ltd DCB Bank Bandhan Bank South Indian Bank Ujjivan SFB CSB Bank Ltd 10.0
8.0
6.0
4.0
2.0
0.0
FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company Reports, Ace Equity and Ventura Research
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NNPA
City Union Bank Ltd DCB Bank Bandhan Bank South Indian Bank Ujjivan SFB CSB Bank Ltd 5.0
4.0
3.0
2.0
1.0
0.0
FY18 FY19 FY20 FY21E FY22E FY23E
Return on Equity (ROE)
City Union Bank Ltd DCB Bank Bandhan Bank South Indian Bank Ujjivan SFB CSB Bank Ltd 30.0
20.0
10.0
0.0
-10.0
-20.0
FY18 FY19 FY20 FY21E FY22E FY23E
Return on Asset (ROA)
City Union Bank Ltd DCB Bank Bandhan Bank South Indian Bank Ujjivan SFB CSB Bank Ltd 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0
FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company Reports, Ace Equity and Ventura Research
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Quarterly Financials
Figures in Rs Cr. FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 FY20 Q1FY21 Q2FY21 Q3FY21QoQ (%) YoY (%) Interest Earned 1,347.5 355.4 376.9 388.7 388.9 1,509.9 422.6 470.0 482.6 2.7 24.2 Interest Expended 907.6 223.0 229.8 233.4 231.4 917.6 237.3 240.7 231.4 -3.9 -0.9 Net Interest Income 440.0 132.5 147.1 155.2 157.6 592.3 185.3 229.3 251.2 9.6 61.8 Net Interest Margin (%) 2.8 3.5 3.7 3.9 3.7 3.4 4.1 4.5 5.2
Other Income 135.9 30.2 54.2 50.6 86.6 221.6 74.3 97.6 116.6 19.5 130.4
Net Operating Income 575.9 162.7 201.3 205.9 244.1 813.9 259.5 326.8 367.8 12.5 78.7
Employee Cost 384.4 76.6 91.6 84.2 79.0 331.3 86.0 103.8 127.8 23.2 51.8 Other Operating Expenses 178.1 46.0 46.2 51.7 58.2 202.1 44.4 50.3 57.6 14.7 11.6 Cost to Income Ratio (%) 97.7 75.3 68.5 66.0 56.2 65.5 50.3 47.1 50.4
Operating Profit 13.4 40.1 63.5 70.0 107.0 280.6 129.1 172.8 182.4 5.5 160.5 Operating Margin (%) 2.3 24.7 31.5 34.0 43.8 34.5 49.7 52.9 49.6
PBT -300.1 30.0 38.9 42.4 22.7 134.0 71.6 92.1 70.9 -23.0 67.2 Taxes -102.7 10.5 14.2 14.3 82.4 121.3 18.0 23.2 17.8 -23.1 25.1
PAT -197.4 19.5 24.7 28.1 -59.7 12.7 53.6 68.9 53.1 -23.0 88.5
Advances 10,615 10,605 11,298 10,808 11,366 11,366 11,228 12,538 13,137 4.8 21.6 Deposits 15,124 15,197 15,510 15,241 15,791 15,791 16,338 17,468 17,753 1.6 16.5 CASA Ratio (%) 27.8 28.1 28.2 28.6 29.2 29.2 29.2 29.4 30.4
Capital Adequacy (%) Tier 1 CAR 16.0 - - 22.3 21.8 21.8 17.9 18.4 19.8 Tier 2 CAR 0.7 - - 0.7 0.7 0.7 1.0 1.3 1.3
RoAA (%) -1.17 0.05 0.05 0.06 -0.12 0.07 0.10 0.31 0.25 RoAE (%) -13.79 1.52 1.59 1.58 0.65 0.65 2.95 3.31 2.48 Source: Company Reports and Ventura Research
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Key Management Personnel
Key Person Designation Details
He holds a bachelor’s degree and a master’s degree in commerce from Madurai Kamaraj University and is an associate of the Indian Institute of Bankers. He previously served as the chief executive of the Association of Mutual Funds in India and is currently responsible for overall Mr. C. VR. Rajendran MD & CEO management and expansion of the bank. He has over 40 years of experience in banking and finance sector and was previously associated with Corporation Bank, Andhra Bank and Bank of Maharashtra.
He holds a bachelor's degree in Business Management from University of Mysore. Further he is an Associate of the Institute of Chartered Accountants of India and Associate of the Institute of Chief Financial Mr. B K Divakara Company Secretaries of India. He is also an associate of Institute of Cost and Management Officer Accountants of India. Prior to joining CSB Bank, he was working with the Central Bank of India and Corporation Bank and has over 33 years of experience in the field of banking.
Mr. Pralay is an Engineer from IIT, Kharagpur and a Management graduate from IIM, Calcutta. He President (Retail, joined the team with effect from 23rd September 2020. Prior to joining CSB Bank, Mr. Pralay was Mr. Pralay Mondal SME, Operations Executive Director & Head of Retail Banking at Axis Bank. He has around 30 years of banking and IT) experience across multiple business and functions including retail assets, retail liabilities, business banking, products and technology.
Mr. Madhavan is on the Board of the Bank since December 13, 2018 as an Independent Director . Mr. Madhavan Part – time He is a seasoned banker having served Reserve Bank of India for over 37 years in various areas Aravamuthan Chairman and capacities. Mr. Madhavan expertise include deep knowledge of IT Systems, Payment & Settlement Systems, Offsite surveillance of Banks.
Source: Company Reports and Ventura Research
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Financials and Projections
Y/E March (` crore) FY19 FY20 FY21E FY22E FY23E Y/E March (` crore) FY19 FY20 FY21E FY22E FY23E Income Statement Ratio Analysis Interest Income 1,347.5 1,509.9 1,830.5 2,337.5 2,889.5 Efficiency Ratio (%) Interest Expense 907.6 917.6 967.3 1,228.2 1,527.2 Int Expended / Int Earned 67.4 60.8 52.8 52.5 52.9 Net Interest Income 440.0 592.3 863.2 1,109.3 1,362.4 Int Income / Total Funds 8.0 8.0 7.6 7.8 7.8 YoY change (%) 14.3 34.6 45.7 28.5 22.8 NII / Total Income 29.7 34.2 38.5 39.7 39.2 Non Interest Income 135.9 221.6 413.9 453.8 582.3 Other Inc. / Total Income 9.2 12.8 18.4 16.3 16.8 Total Net Income 575.9 813.9 1,277.1 1,563.0 1,944.6 Ope. Exp. / Total Income 37.9 30.8 30.4 29.7 29.0 Total Operating Expenses 562.5 533.3 682.3 828.5 1,007.6 Net Profit / Total Funds -1.2 0.1 1.0 1.0 1.3 Pre Provision profit 13.4 280.6 594.8 734.5 937.0 Credit / Deposit 70.2 72.0 79.0 83.0 85.0 YoY change (%) -82.0 2,000.1 112.0 23.5 27.6 Investment / Deposit 26.6 33.9 40.1 39.7 37.8 Provisions 313.5 146.6 262.1 334.4 281.0 NIM 3.0 3.6 4.4 4.4 4.4 Profit Before Tax -300.1 134.0 332.6 400.2 656.0 YoY change (%) 100.9 -144.7 148.2 20.3 63.9 Solvency Taxes -102.7 121.3 83.8 100.8 165.3 Gross NPA (Rs. Cr) 530.6 409.4 613.7 635.3 730.7 Net profit -197.4 12.7 248.8 299.3 490.7 Net NPA (Rs. Cr) 240.7 216.9 314.0 399.3 479.5 YoY change (%) 102.5 -106.4 1,854.6 20.3 63.9 Gross NPA (%) 4.9 3.5 4.3 3.5 3.2 Net NPA (%) 2.3 1.9 2.2 2.2 2.1 Balance Sheet Capital Adequacy Ratio (%) 16.7 22.5 20.0 18.5 18.2 Cash & Balances with RBI 725.4 547.8 686.5 831.0 1,020.8 Tier I Capital (%) 16.0 21.8 19.5 18.0 17.8 Inter bank borrrowing 248.2 391.6 487.8 590.5 725.3 Tier II Capital (%) 0.7 0.7 0.6 0.5 0.4 Investments 4,027.6 5,359.8 7,235.8 8,682.9 10,159.0 Loan and Advances 10,615.2 11,366.4 14,272.6 18,151.0 22,833.3 Other Assets 1,076.9 970.4 1,213.2 1,542.8 1,940.8 Per Share Data Total Assets 16,911.2 18,864.2 24,167.7 30,134.6 37,097.0 EPS -23.0 0.7 14.3 17.3 28.3 Deposits 15,123.9 15,790.7 18,066.6 21,868.7 26,862.8 Book Value 90.8 113.0 127.3 144.6 172.9 Borrowings 0.0 794.0 3,283.1 4,947.2 6,209.7 Adj Book Value of Share 62.8 100.5 109.2 121.6 145.2 Other Liability 355.6 318.9 608.6 810.0 1,025.0 Equity 86.0 173.5 173.5 173.5 173.5 Valuation Ratio Reserves 694.4 1,787.2 2,036.0 2,335.3 2,826.0 Price/Earnings (x) -10.2 319.2 16.3 13.6 8.3 Share warrant O/s 651.3 0.0 0.0 0.0 0.0 Price/Book Value (x) 2.6 2.1 1.8 1.6 1.4 Total Liabilities 16,911.2 18,864.2 24,167.7 30,134.6 37,097.0 Price/Adj.Book Value (x) 3.7 2.3 2.1 1.9 1.6
Dupont Analysis Return Ratio % of Average Assets RoAA (%) -1.2 0.1 1.2 1.1 1.5 Net Interest Income 2.7 3.3 4.0 4.1 4.1 RoAE (%) -23.7 0.9 11.9 12.7 17.8 Non Interest Income 0.8 1.2 1.9 1.7 1.7 Net Income 3.5 4.6 5.9 5.8 5.8 Growth Ratio (%) Operating Expenses 3.4 3.0 3.2 3.1 3.0 Interest Income 3.9 12.0 21.2 27.7 23.6 Operating Profit 0.1 1.6 2.8 2.7 2.8 Interest Expenses -0.5 1.1 5.4 27.0 24.3 Provisions & Contingencies 1.9 0.8 1.2 1.2 0.8 Other Income 8.4 63.0 86.8 9.6 28.3 Taxes -0.6 0.7 0.4 0.4 0.5 Total Income 4.3 16.7 29.6 24.4 24.4 ROAA -1.2 0.1 1.2 1.1 1.5 Net profit 102.5 -106.4 1,854.6 20.3 63.9 Deposits 2.9 4.4 14.4 21.0 22.8 Advances 13.7 7.1 25.6 27.2 25.8 Source: Company Reports, Ace Equity and Ventura Research
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Disclosures and Disclaimer
Ventura Securities Limited (VSL) is a SEBI registered intermediary offering broking, depository and portfolio management services to clients. VSL is member of BSE, NSE and MCX-SX. VSL is a depository participant of NSDL. VSL states that no disciplinary action whatsoever has been taken by SEBI against it in last five years except administrative warning issued in connection with technical and venial lapses observed while inspection of books of accounts and records. Ventura Commodities Limited, Ventura Guaranty Limited, Ventura Insurance Brokers Limited and Ventura Allied Services Private Limited are associates of VSL. 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