CSB Bank shares jump 6% in weak market, hit 52-week high; more steam left?

According to analysts, the bank's management has a multipronged growth strategy, leading to a compelling investment argument

Shares of Kerala-based CSB Bank hit fresh 52-week high of Rs 358 apiece as they surged 6 per cent on the BSE in Tuesday's intraday trade. The benchmark S&P BSE Sensex, on the other hand, was down 0.35 per cent at 65,600 levels at 1:25 PM. 

The shares were trading close to their all-time high level of Rs 374, touched on July 5, 2021. Including today's rally, the stock has moved higher by 8.6 per cent in five sessions as against a 1 per cent dip in the frontline Sensex index. 

Effective October 1, CSB Bank has hiked lending rates by 10 basis points across tenors. The overnight Marginal Cost of Funds Based Lending Rates (MCLR), for instance, has been increased to 8.3 per cent from 8.2 per cent. Similarly, one-month MCLR has been increased to 8.4 per cent, three-month MCLR to 8.8 per cent, six-months MCLR to 9.3 per cent, and one-year MCLR to 10.3 per cent.

That apart, the lender has revised base rate from 11.05 per cent per annum to 11.10 per cent p.a.

According to analysts at Kotak Institutional Equities, the bank's management has a multipronged growth strategy, leading to a compelling investment argument.

"The bank has embarked on its SBS 2030 journey, which stands for Sustain-Build-Scale. Between FY23 and FY25, the bank will focus on sustaining and strengthening the franchise, including liabilities, gold loans, net interest margin (NIM), and cost of funds. At the same time, it will build the infrastructure highway required for scaling the bank. Then between FY25 and FY27, the bank would focus on investing in technology, people, distribution, and customer acquisition to build a strong franchise that offers several products to the target customer base. In the final phase from FY27 to FY30, the bank will look to scale up all new products to the desired scale," it said in a recent report.

The Management intends to grow the loan book at a rate that is neearly 50 per cent higher than the banking system. By 2030, the overall loan mix is projected to be much more diversified: 20 per cent gold loans, 30 per cent other retail loans, 20 per cent MSME, and 30 per cent wholesale.

Last week, it announced a strategic partnership with Daimler India Commercial Vehicle (DICV) to deliver specialised vehicle financing options. Under the memorandum of understanding, CSB Bank has agreed to offer custom financial solutions to dealers and a variety of lending options to retail customers and contractors.

That apart, the Management intends to target a CASA ratio of 30-32 per cent. It is also optimistic about maintaining the NIM above 5 per cent. 

Financial snapshot

For the April-June quarter (Q1-FY24), CSB Bank had reported a net profit of Rs 132 crore, up 15.8 per cent from PAT of Rs 114 crore reported in the corresponding quarter last year.

Its net interest income (NII) stood at Rs 364 crore, up 17 per cent from Rs 311 crore YoY. Gross slippages were under control at Rs 33 crore (annualized slippage ratio of 0.6 per cent) during the quarter under review, and recoveries and upgrades were at Rs 23 crore.

NIM expanded 2bps QoQ to 5.40 per cent, due to liquidity unwind, while Advances grew 2.1 per cent/28.6 per cent QoQ/YoY driven on sequential basis by

Gold loans and Retail loans.

"Deposit rates are starting to flatten and would peak out in Q2-FY24 after which, they would start to taper down. Management stated that they do not need higher rates for deposit mobilisation. However, the bank will be focusing on incremental deposit verticals including TASC, government, salary accounts and also, on adding branches," noted analysts at YES Securities.

The brokerage has a 'Buy' rating with a target price of Rs 360. 

Tech View

The stock has broken out from the upper end of the Bollinger Band on the daily (Rs 345), weekly (Rs 352), and monthly (Rs 348) charts. Once the stock tops its all-time high level, it may touch Rs 313 levels, followed by Rs 334, as per the Fibonacci charts.

Most of the momentum oscillators are in the favour of bulls, except for the Relative Strength Indicator (RSI), which is entering the 'Overbought' zone on the daily charts.