Union Bank of India may rally to Rs 280 in next 12 -15 months, says PN Vijay, Portfolio Manager, www.askpnvijay.com.
Vijay told CNBC-TV18, “Union Bank of India is a midsized public sector bank. It’s based in Mumbai. It’s one of the first bouquet of 14 which Mrs. Gandhi nationalized in July in 1969 and under government’s liberalized policy of getting public sector companies listed it was listed on the bourses in the late 90s.”
He further added, “Union Bank used to be a darling in the 2010 Bull Run you would recollect, but then it just fell off after it reported rather disastrous results right through 2011. Of course Q3 of 2011-12 was no great shakes, but there appears to be a pretty significant turnaround in Union this quarter. We saw the Net Interest Margins around 3.3% which for a largish PSU bank is good. The recovery is excellent. This one is noticing even in State Bank of India. We tend to focus a lot on the gross and net NPAs, but what’s really going to make the balance sheet better is how much I able to recover. The recoveries went up by about 70% in Union’s case. As far as the GNPA is concerned there was a pretty decent improvement from 3.3% to 3% and the net NPAs from 1.9% to 1.7%.”
“If you looked at the composition of the bad loans, it’s mainly electricity boards. They don’t have any exposure to aviation and electricity boards are government instrumentalities and the way they have hiked tariffs in the last three-four months I think electricity boards will go off the ICU during the course of this year. In terms of valuations it’s at a adjusted price-to-book of about 1 and price-to-earnings of about 5 on the 12-13 which is pretty attractive for a solid well run bank. Interesting thing about Union is that the cost to income ratio which most banks track very closely, the expense ratio as we call it have fell very sharply from 42.5% to 39% which means the intrinsic profitability of the bank is improving. It’s trading at about Rs 200 which is very attractive in my view and I expect it to go up to about Rs 280 in the next 12-15 months.”