Buy Union Bank of India; target of Rs 150: Prabhudas Lilladher

Prabhudas Lilladher's research report on Union Bank of India

UNBK saw a weak quarter owing to lower fees/NII which led to core PPoP being a miss by 17.5%. PSLC income opportunity was not available in Q1’26 due to change in gold loan regulations. Hence, we cut fees for FY26/27E by ~10%. With RBI tweaking back gold loan regulations, agri growth may improve supporting fees. Reported NIM declined by 11bps QoQ to 2.76% due to fall in loan yields by 22bps QoQ despite a decline in corporate and increase in retail. As a result, we trim NIM for FY26/27E by 7bps/8bps to 2.53%/2.61%. Asset quality remains a silver lining with lower net slippages resulting in controlled credit costs; we GNPA expect to further improve by 92bps from 3.52% in Q1’26 to 2.6% by FY27E.

Outlook

With core RoA of 0.9x in FY27, stock is valued at 0.8x on Mar’27 ABV. Due to cut in fees/NII we lower core PAT for FY26/27E by avg. 8% and hence cut TP to Rs150 from Rs160, keeping multiple at 0.9x. Retain ‘BUY.’

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