Sharekhan recommended hold rating on Union Bank of India with a target price of Rs 210 in its research report dated November 03, 2017.
Sharekhan's research report on Union Bank of India
In Q2FY18, Union Bank of India (UBI) operating performance was subdued. Net interest income (NII) grew marginally by 1.9% y-o-y to Rs. 2,320.7 crore owing to interest reversals that slowed growth. Net interest margin declined 22 bps y-o-y to 2.08%. However, sequentially, it rose 2 bps. Non-interest income was up by 6.8% y-o-y, but fee income growth was relatively better at 10.4% y-o-y. During the quarter, the bank made additional provisions of Rs. 1,566 crore towards cases referred by the Reserve Bank of India (RBI) to the National Company Law Tribunal (NCLT). These provisions could have been proportionately spread over three quarters. However, the bank chose to make the entire provisions in Q2FY18 itself. As a result, total provisions surged to Rs. 3,554.7 crore (up 119.4% y-o-y and 108.6% q-o-q). Higher provisioning led to a net loss of Rs.1,530.7 crore.
UBI’s asset quality for Q2 FY2018 is encouraging. We believe the bank may benefit from the government’s capital infusion which will help achieve the guidance of ~10% credit growth for FY18E. We maintain our ‘Hold’ rating on the stock with a price target of Rs. 210.
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