Union Bank of India jumps 6% as Investec upgrades stock to 'buy', sees 19% upside potential

Investec’s upgrade comes as analysts see ample margin of safety built into the stock’s valuation

Shares of Union Bank of India rallied 6 percent to Rs 127 per share on September 16, following an upgrade by Investec, which moved the stock to a 'buy' rating and set a target price of Rs 151, indicating a potential 19 percent upside from current levels.

Investec’s upgrade comes as analysts see ample margin of safety built into the stock’s valuation, especially after it experienced a nearly 30 percent correction over the past three months. This correction was largely driven by concerns around increasing corporate asset quality stress. However, Investec believes these concerns have been sufficiently priced in.

The underperformance of the banking sector as a whole, driven by slower deposit growth and regulatory headwinds, also weighed on Union Bank’s stock. Currently, at 0.8x price-to-book value and offering a dividend yield of 3.8 percent, the stock is trading close to its historical averages. Analysts see this as an attractive entry point, especially given the strong fundamentals the bank displayed in its recent earnings.

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In the June quarter, Union Bank reported a solid 13.6 percent year-on-year increase in net profit, driven by robust double-digit loan growth. Net interest income also grew 6.4 percent YoY, although the net interest margin (NIM) contracted by 8 basis points, reflecting some pressure on profitability.

Despite this, the bank has made significant strides in improving its asset quality, with the gross NPA ratio falling by 280 basis points year-on-year to 4.54 percent, and net NPA declining by 68 basis points to 0.9 percent in Q1FY25. This indicates a healthier loan book and better management of non-performing assets.

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