Buy United Bank of India; target of Rs 70: Magnum

Magnum is bullish on United Bank of India and has recommended buy rating on the stock with a target of Rs 70 in its May 29, 2012 research report.

“United Bank of India, Net Profit of the Bank stood at Rs 632.53 cr as on 31st March, 2012. Bank’s Interest Income during the FY2011-12 increased by 25.5% on YoY basis to reach Rs 7,961.08 cr. During FY 2011-12, the Non-Interest Income was Rs 732.91 cr which grew by 15.1% on y-o-y basis. As on 31st March 2012 the gross Advances increased to Rs 63,873 cr recording a growth of 18.4% on y-o-y basis. On a y-o-y basis, the SME Advances grew by over 26.8% reaching Rs 9,156 cr as on March 31, 2012, Agriculture Advances increased to Rs 8,144 cr registering a growth of 42.6%. The Priority Sector Advances increased to Rs 22,274 cr as on March 31, 2012 from Rs 17,751 cr as on March 31, 2011 thereby registering a growth of 25.5% on y-o-y basis.”
“Bank has performed reasonably well during the Financial Year 2011-12 in comparison to its industry peers and achieved a Total Business of Rs 152,989 crore recording a y-o-y growth of 16.1%. The Deposits soared to Rs 89,116 crore registering an annualized growth of 14.5%. The share of CASA stood at 40.8%. The Savings Bank deposits and Current Deposits increased to Rs 26,589 Crore and Rs 9,741 Crore with y–o-y growth of 14.5% and 14.2 % respectively. Bank's capital adequacy ratio stood at 12.69% vs 13.05% (YoY). During the year, Bank has allotted 1.65 lakh crore shares of Rs 10 each at a price of Rs 79.74 per share to the Life Insurance Corporation of India. However Tier I capital still lower at 8.8% which will be a constrain. The bank’s slippages stood at Rs 590 cr which came in higher on account of classifying Kingfisher as an NPA in Q4FY12 (exposure of Rs 314 cr). Total sanction SEB is around Rs 10,700 cr out of which outstanding is to the tune of Rs 7,085 cr. Bank is highly exposed to Rajasthan SEB, Maharashtra SEB & West Bengal SEB. The bank’s restructured book increased by 38% qoq, taking the outstanding book to Rs 3,106 cr. The sharp jump in restructuring book was due to restructuring of Air India (exposure of Rs 460 cr). During the quarter, provisions stood at Rs 307 cr against Rs 281 cr an increase of 9% on YoY basis. The gross NPA ratio shot up from 2.51% to 3.41% at Rs 2,176 cr QoQ while net NPA ratio increased from 1.42% to 1.72% at Rs 1,075 cr.”
“United Bank of India is expected to report sound earnings going forward considering the Asset Quality and slippages. Management is confident for cash recovery in the NPA category and we have raised our estimates by 12% for FY13-14. At CMP of Rs 59, the stock is trading at cheap valuation of PE of 2.9x of FY13E EPS and at an adjusted P/BV of 0.46x FY13E BV (one of the lowest in the industry). We have valued the Bank at P/BV of 0.55x FY13E & maintain our BUY rating on the stock with a target price of Rs 70 with an upside potential of 18% from current levels,” says Magnum research report.  FIIs holding more than 30% in Indian cos 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. To read the full report click on the attachment

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