I was invested in CUB two years ago and switched to large banks that were available at a much lower valuations
But looking at it now, it looks like CUB is very oversold, most of the small banks that were sub 1x PB have railed the valuations are not similar to CUB
Given that the loan book is 99% secured and 20%+ of the book is gold loans there is a very low chance of losing book value
I have always believed that CUB is horrible at tech so their explaniation of the RBI divergence and the audit of the agri loan interest sub vention is plausible
But to be i dont see how buying a bank that has good credit quality and is at 1.25 PB can lose money even if they grown much slower than the industry
From what i can tell the main reason for the de-rating is
- Lower growth projected
- Higher provisions as the management wants to increase PCR to 50%+ soon
- Potential hit of 200 cr incase the “expected credit loss” of the RBI is implemented
- The 200cr divergance
I feel at this price all this is adequately factored in.
I dont think this is a bank to hold for decades, there are excellent rural msme bankers in tamil nadu but that concentration has risks, that along with their lack of of a good deposit franchise, digital banking and consumering banking
But on a shorter term this is definitely way too cheaply priced given that they are achiving 1.5% ROA and 12% ROE even in a bad year
Compared to the best possible bank HDFC that is ~18% RoE at ~3 PB this is a good deal
And at ~7500 cr book value 1000cr profit next year they’ll compound book at 14%
Would love to get counter views to this
Disc: Will start small accumulation soon