Accumulate Union Bank; target Rs 220: Dolat Capital

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Accumulate Union Bank; target Rs 220: Dolat Capital

Dolat Capital is bullish on Union Bank of India (UBI) and has recommended accumulate rating on the stock with a target price of Rs 220 in its January 27, 2012 research report.

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Dolat Capital is bullish on Union Bank of India (UBI) and has recommended accumulate rating on the stock with a target price of Rs 220 in its January 27, 2012 research report.

"In Q3 FY12, the Union Bank of India's (UBI) net interest income (NII) grew 10% YoY to Rs 17.8bn - 4.2% higher than our estimates of Rs 17.1bn. It reported operating profit of Rs 12.8bn compared to our estimates of Rs 12.4bn. Bottom-line de-grew by 66% YoY to Rs 2bn (compared to our estimates of ` 6bn) and consensus estimates of Rs 5.4bn. Contained cost of funds on the back of moderate business growth, higher incremental C-D ratio and higher yield on funds aided margin. The bank's margin increased by 10bps to 3.31% compared to 3.21% in Q2 FY12 though lesser than previous year corresponding period margin at 3.44%."

"The deviation in bottom-line was mainly due to much higher overall provisions. On fresh restructuring, NPV loss provision was much higher than expectation at Rs 3.8bn. Apart from that, there was much higher provision for bad-debts at Rs 4.2bn and higher investment depreciation losses of ` 730mn. On sequential basis, gross slippages came down sharply to 1.6% from 5.3% in Q2 FY12 and 2.24% in Q1 FY12; a positive surprise."

"On core income level and operating level, the bank's Q3 FY12's financial performance were slightly higher than our estimates. But, much higher than expected provisioning was a negative surprise which resulted into deviation at net profit level. We reduce our FY12 and FY13 earnings estimates by 4.5% and 5% respectively and reduce our target price by 8% to Rs 220. At current price, the stock quotes at 1.0x ABV FY13. We cut our stock rating to Accumulate due to reduction in our earning estimates and recent rally in stock price," says Dolat Capital research report.

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To read the full report click on the attachment