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CSB Bank Ltd>
  • CMP : 398.1 Chg : 14.05 (3.66%)
  • Target : 330.0 (18.28%)
  • Target Period : 12-18 Month

08 May 2023

Elevated opex to moderate earnings growth next year…

About The Stock

CSB Bank is a south based private sector bank with Kerala contributing ~27% of total advances. Changed strategy in various aspects of lending have led to a transformation and improved performance in the past few years.

  • Gold, SME are key lending segments comprising ~45%, ~12%, respectively, of the book
  • Liability franchise is healthy with loyal customer base of ~21 lakh

Flat QoQ earnings growth; asset quality improved.

  • NII up 14.7% YoY, -0.4% QoQ, NIM fell 42 bps at 5.4%, yields at 11.2%
  • C/I at 57% QoQ while provision witnessed a reversal. PAT reported growth of 19.6% YoY, flat on QoQ basis
  • GNPA down 19 bps QoQ to 1.26%, NNPA down 7 bps QoQ to 0.35%
What should Investors do?

CSB Bank has given ~10% returns in the past two years. The management’s focus on branch expansion in new geographies will aid CASA accretion. Healthy growth in non-gold segment coupled with controlled delinquencies will aid overall performance. Near term earnings to moderate due to costs.

  • Considering strong franchise, we retain our BUY rating on the stock
Target Price and Valuation

CSB bank is expected to deliver credit growth higher than industry with RoA of ~1.5%. Thus, we value CSB Bank at ~1.4x FY25E ABV with a revised target price of ₹ 330 vs. ₹ 300 earlier

Key Triggers for future price performance
  • Majority of capex will be done in the next couple of quarters, which will keep opex elevated though the benefit to accrue gradually
  • Expansion outside the southern region will bring diversification and target of 100 branch addition in FY24 will aid CASA growth
  • Guidance of higher than industry credit growth with sustainable margins (at ~5% levels) and lower credit cost to keep RoA steady
Alternate Stock

Apart from CSB Bank, we also like Axis Bank.

  • Strong liabilities franchise, adequate capitalisation and healthy provision buffer to aid business growth as well as earnings trajectory
  • BUY with a target price of ₹ 1100

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 3 Year CAGR(FY20-FY23) FY24E FY25E 2 Year CAGR (FY23-FY25E)
NII 592.3 941.4 1,153.3 1,333.8 31.1 1,573.9 1,851.8 17.8
PPP 280.6 515.5 613.7 707.4 36.1 815.8 935.9 15.0
PAT 12.7 218.4 458.5 547.4 - 551.9 607.2 5.3
ABV (|) 91.9 107.3 138.0 171.8 - 197.6 229.3 -
P/E 380.4 22.2 10.6 8.8 - 8.8 8.0 -
P/ABV 3.0 2.6 2.0 1.6 - 1.4 1.2 -
RoA 0.1 1.0 1.9 2.0 - 1.7 1.5 -
RoE 0.8 10.5 19.0 18.7 - 15.9 15.1 -
Source: Company, ICICI Direct Research

Variance Table

  Q4FY23 Q4FY23E Q4FY22 YoY (%) Q3FY23 QoQ (%) Comments
NII 348.4 344.1 303.8 14.7 349.7 -0.4 QoQ growth muted due to margin contraction
NIM (%) 5.4 5.6 5.4 -4 bps 5.8 -42 bps  
Other Income 126.3 94.8 63.6 98.6 89.9 40.5 Processing fee jumped 305% YoY & 49% QoQ
Net Total Income 474.8 438.9 367.4 29.2 439.6 8.0  
Staff cost 155.6 154.9 143.4 8.5 151.7 2.6 Higher income levels kept CI ratio largely steady at ~57%
Other Operating Expenses 117.3 94.3 82.0 43.0 94.5 24.1  
PPP 201.9 189.8 142.1 42.1 193.4 4.4  
Provision -9.2 -4.2 -34.1 - -15.0 - Improved recoveries during the quarter aided reversals
PBT 211.1 194.0 176.2 19.8 208.4 1.3  
Tax Outgo 54.7 48.5 45.5 20.4 52.5 4.4  
PAT 156.3 145.5 130.7 19.6 156.0 0.3 Sequential performance impacted due to decline in NIMs
Key Metrics              
GNPA 263 292 290 -9.3 271 -3.2 Slippage ratio inched up slightly to 0.76%
NNPA 72 83 107 -32.9 78 -7.5  
Gross Advances 20,651 20,842 15,998 29.1 18,651 10.7 Gold loan segment grew 48% YoY
Deposit 24,506 24,506 20,188 21.4 22,664 8.1 CASA ratio improved to 32.2 vs 31.4% in Q3FY23


Q4FY23 Earnings Conference Call highlights

  • Guidance – 5% NIMs, GNPA to be < 2%, NNPA to be < 1%, credit cost to be <40 bps in the next three to four years
  • Fee income will continue to grow faster than credit growth. The management indicated that PSLC and treasury income will not be negative in FY24
  • Majority of investment will be on distribution channels, employees, etc, to scale up the liability franchise. Maximum capital expenditure on tech will happen in FY24, which will keep CI ratio elevated (to 55-60%) in the near term but gradually come down to 40-45%
  • Hiring process is on track and looking to add more front & mid-level employees. Employee growth will 30-40% on a YoY basis
  • Significant investment in tech will start showing benefits from FY25
  • Of total loan ~60% is at fixed rate, ~30% is linked to MCLR and balance is repo rate linked
  • Aim to add 100 branches in FY24. Total 50-60% incremental branch addition will be in west and north
  • Recovery from written off accounts was | 70 crore in FY23 vs. | 77 crore in FY22




I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Pravin Mule, MBA, M.com. 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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