Buy Union Bank of India, target Rs 188: KJMC

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Buy Union Bank of India, target Rs 188: KJMC

KJMC is bullish on Union Bank of India and has maintained buy rating on the stock with target price of Rs 188 with 12 onth prespective.

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KJMC is bullish on Union Bank of India and has maintained buy rating on the stock with target price of Rs 188 with 12 onth prespective.

KJMC research report on Union Bank of India

Bank achieved business growth of 16% YoY during FY07; Advances grew by 17% and deposits by 15%. Renewed focus on credit growth after recent restructuring of portfolio, which lead to moderate growth; Advances to grow at CAGR of 19% during next 2 years Improved asset quality with gross NPA's reducing to 2.94% (last year - 3.84%) and Net NPA's to 0.96% (last year-1.6%) Improved profitability with PAT growth of 25% YoY as compared to decline of 6% during previous year; UBI has one of the lowest cost to income ratio (42.5%) and with rising income levels, PAT is expected to grow at CAGR of 24% during next 2 years.

Stable Net Interest Margins (NIM's) despite rising cost of funds; NIM's expected to remain above 3% due to improving yields on advances. Net Interest income (NII) registered YoY growth of 18% and is expected to grow at CAGR of 18% during next 2 years. Bank is undertaking major branch expansion and makeover after standstill for some time; Expansion to mobilise CASA deposits, contain rising cost of deposits and attract fresh business.

Bank is also venturing in to insurance business, which will supplement income and also enrich valuations over long term. At CMP of Rs.153, stock is trading at P/Adj.BV of 1.9x FY07, 1.5x FY08E and 1.2x FY09E Adj BV. On P/E multiple basis, it is trading at 9.1x FY07, 7.1x FY08E, 6x FY09E EPS. Our blended target price based on Gordon Growth model and P/E multiple is Rs.188, which translates to P/E of 7.3x its FY09E EPS and P/Adj BV of 1.5x its FY09E Adj BV respectively. We recommend a "Buy" on the stock with a potential upside of 23% on CMP (overall return 25% including dividend yield)