Accumulate Union Bank; target Rs 250: Unicon Investment

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Accumulate Union Bank; target Rs 250: Unicon Investment

Unicon Investment is bullish on Union Bank of India and has recommended accumulate rating on the stock with a target of Rs 250 in its January 27, 2012 research report.

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Unicon Investment is bullish on Union Bank of India and has recommended accumulate rating on the stock with a target of Rs 250 in its January 27, 2012 research report.

"Union Bank of India's (Union) Net interest income increased by 10% to INR 17.81 bn (inline with our estimates of INR 17.95 bn) from INR 16.15 bn YoY. However, net profit fell by 66% to INR 1.97 bn (below our estimates of INR 3.31 bn) due to increase in provisioning towards NPAs, restructured advances & depreciation on investments. Provisioning increased by 143.25% to INR 9.73 bn in Q3FY12 as against INR 4 bn in Q3FY11. It registered a loss of INR 810 mn in its corporate banking division as against profit of INR 3.66 bn YoY. Its treasury operations profit also dropped nearly 43% to INR 1.9 bn in Q3FY12 from INR 3.32 bn Q3FY11."

"Union's advances grew by 15% to INR 1.28 Tn on YoY basis. Given the slackening economic environment loan book is likely to grow at 16-18%. Deposits grew by 10% to INR 1.86 Tn on YoY basis; also CASA deposits grew by 7.6% to INR 668 bn YoY taking the CASA ratio to 32.54%. Due to hike in lending rates during Q2FY12 NIMs improved by 10 bps to 3.31% on sequential basis, but have fallen on YoY basis by 13 bps due to higher costs. However, with saving bank deregulation NIMs are likely to contract from current levels in medium term. Non-interest income grew by 20% to INR 5.9 bn on YoY basis and the fee income grew by 40% to INR 3.2 bn."

"On the asset quality front, bank surprised positively the Gross NPA ratio decreased to 3.3% from 3.5% in Q2FY12. Also the Net NPA ratio decreased to 1.9% from 2% in Q2FY12. The gross slippages were contained at 1.4% of total loans (INR 5.7 bn). This included one-off account ~INR 2bn, INR 1 bn from restructure advances portfolio & INR 2 bn slippage from media sector. During Q3FY12, restructured loan portfolio increased by 1.3% of total loans to INR 20 bn and out of this telecom sector accounted for INR 15 bn. The bank has referred the accounts to CDR and may take a hit ~INR 3.75 bn."

"Union Bank of India is expected to grow deposits & credit ~14% & ~17% in FY13E respectively and fee-based income in line with the loan-book. Going forward margins are likely to witness some pressure on back of rising costs. On the other hand, we expect slippages to remain elevated in the coming few quarters. However, with banks focus on recovery process the NPAs are likely to fall going ahead. Given the disappointment on key metrics asset quality, lower loan & deposit growth; we reduce the rating to Accumulate from Buy, for target price INR 250," says Unicon Investment research report.

Non-Institutions holding more than 90% in Indian cos

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To read the full report click on the attachment