Buy Union Bank of India; target Rs 296: Sushil Finance

Sushil Finance's research report on Union Bank of India (UBI) -

"Union Bank of India (UBI) has reported decent numbers and ahead of expectations. NII growth remained soft while non-interest income growth was high on sharp trading gains; stabilization seen in asset quality, while lower tax & comparatively lower credit cost helped growth in PAT during Q4FY13. During the quarter, the Bank’s incremental delinquencies was at Rs 8.75 bn (1.7 percent annualised v/s 1.4 percent in Q3FY13) mainly contributed by few accounts of Rs 500-Rs 1000 mn but otherwise spread. The Bank added Rs 14 bn to restructured portfolio and it hinted a pipeline of Rs 22 bn quarters ahead with major being from Iron & Steel, Construction and Textiles sectors. The cumulative restructured loan portfolio now stands at Rs 169.6 bn or 8.2 percent of advances (outstanding at Rs 116.3 bn or 5.6 percent of advances). The Bank holds their strategy to arrest fresh slippages and speed up recoveries in smaller accounts and also focus to recover large accounts in the subsequent quarters. Although asset quality has improved, we expect some bad loans may crop up in Q1FY14 (trend also suggests) but recoveries and upgradations will keep asset quality stable. In absolute terms, Gross NPAs increased by 16 percent YoY but decreased 1 percent QoQ and Net NPAs increased by 11 percent YoY and 6 percent QoQ. In percentage terms, Gross NPAs stood at 3.0 percent, down 3bps on YoY & 38bps on QoQ basis. Net NPAs stood at 1.6 percent, down 9bps YoY & QoQ respectively in Q3FY13. Union Bank’s core performance continues to remain steady on back of decent biz growth and maintained NIMs (though now in pressure). The Bank has surprised positively on asset quality and has been able to manage it quite well. Considering decent Q4FY13 results, we have slightly tweaked our estimates by slightly reducing business growth and NIMs for FY14E, while also introduced our FY15E. Going forward, we expect its Advance & Deposit to grow by 16.7 percent & 17.1 percent respectively in FY14E and 18.2 percent & 17.3 percent respectively in FY15E, while Net Profit to grow at 17 percent in FY14E & at 13 percent in FY15E. Focus on improving the asset quality, cautious view on lending to risky sectors, decent CASA profile emerge as key value drivers for the stock. UBI currently trades at an valuation of 0.9x FY15E ABV & 5.0x FY15E Earnings. We maintain 'Buy' with a price target of Rs 296," says Sushil Finance research report. Also Read: Union Bank has very strong support at Rs 230: Agarwal Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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