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Union Bank of India- Healthy operating performance; slippages decline
Strong NII growth; asset quality stable: Union Bank of India (UBI) reported
Q3FY11 PAT of Rs5.8bn, down 8.5% YoY and 91.0% QoQ, largely in line with
expectations. Net Interest Income (NII) for the quarter grew strongly by 48.3%
YoY and 5.2% QoQ to Rs16.2bn on account of healthy 25.6% YoY and 5.8% QoQ
advances growth coupled with a 9bps QoQ improvement in the reported NIM to
3.44%. Sequential expansion in margins could be traced down to 11bps QoQ
improvement in reported yields along with continued traction in CASA, aiding
cost containment and margin expansion. Business growth remained healthy
with advances growing at 25.6% YoY and 5.8% QoQ (driven by 28.5% YoY
growth in retail advances) and deposits by 23.5% YoY. CASA ratio improved by
~100bps QoQ to 33.3%. Core fee income (including forex income) grew decently
by ~19% YoY, while the treasury income remained flattish YoY but declined
42.2% QoQ pulling down the overall noninterest income growth.
Lower employee expenses (down 12.1% QoQ) due to sequentially lower gratuity
provisions (Rs0.6.bn in Q3FY11 v/s Rs1.27bn in Q2FY11) resulted in 7.3% QoQ
decline in overall operating expenses. Asset quality remained stable with GNPAs
up marginally by 1.6% QoQ, driven by lower slippages and higher write offs
during the quarter. Provision coverage ratio including technical write‐offs stood
steady QoQ at ~70%.
Slippages trend downwards: In line with management’s earlier guidance, gross
slippages trended downwards as it declined sharply by 32.3% QoQ to Rs7.65bn.
The bank restructured assets worth Rs1.4bn leading to cumulative restructured
assets of Rs52.6bn, 3.9% of advances. Of this, assets worth Rs2.2bn slipped into
the NPA category during the quarter taking the cumulative slippages from the
slippages from the restructured portfolio to 15.3%.
Valuation and Outlook: UBI has delivered healthy operating performance, with
slippages trending downwards. Management expects slippages to trend
downwards from here on and consequently credit costs are likely to move in
similar trend. However, we are revising our FY11 earnings estimates downwards
by 4.8% to factor in weaker fee income growth and likely compression in net
interest margins. Meanwhile, we are revising our earnings estimates upwards
for FY12 by 4.6% to factor in lower credit costs as a result of improving asset
quality. At CMP, the stock trades at 1.6x its FY11E ABV and 1.2x its FY12E ABV.
We maintain our ‘BUY’ rating and price target on the stock.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Union Bank of India- Healthy operating performance; slippages decline
Strong NII growth; asset quality stable: Union Bank of India (UBI) reported
Q3FY11 PAT of Rs5.8bn, down 8.5% YoY and 91.0% QoQ, largely in line with
expectations. Net Interest Income (NII) for the quarter grew strongly by 48.3%
YoY and 5.2% QoQ to Rs16.2bn on account of healthy 25.6% YoY and 5.8% QoQ
advances growth coupled with a 9bps QoQ improvement in the reported NIM to
3.44%. Sequential expansion in margins could be traced down to 11bps QoQ
improvement in reported yields along with continued traction in CASA, aiding
cost containment and margin expansion. Business growth remained healthy
with advances growing at 25.6% YoY and 5.8% QoQ (driven by 28.5% YoY
growth in retail advances) and deposits by 23.5% YoY. CASA ratio improved by
~100bps QoQ to 33.3%. Core fee income (including forex income) grew decently
by ~19% YoY, while the treasury income remained flattish YoY but declined
42.2% QoQ pulling down the overall noninterest income growth.
Lower employee expenses (down 12.1% QoQ) due to sequentially lower gratuity
provisions (Rs0.6.bn in Q3FY11 v/s Rs1.27bn in Q2FY11) resulted in 7.3% QoQ
decline in overall operating expenses. Asset quality remained stable with GNPAs
up marginally by 1.6% QoQ, driven by lower slippages and higher write offs
during the quarter. Provision coverage ratio including technical write‐offs stood
steady QoQ at ~70%.
Slippages trend downwards: In line with management’s earlier guidance, gross
slippages trended downwards as it declined sharply by 32.3% QoQ to Rs7.65bn.
The bank restructured assets worth Rs1.4bn leading to cumulative restructured
assets of Rs52.6bn, 3.9% of advances. Of this, assets worth Rs2.2bn slipped into
the NPA category during the quarter taking the cumulative slippages from the
slippages from the restructured portfolio to 15.3%.
Valuation and Outlook: UBI has delivered healthy operating performance, with
slippages trending downwards. Management expects slippages to trend
downwards from here on and consequently credit costs are likely to move in
similar trend. However, we are revising our FY11 earnings estimates downwards
by 4.8% to factor in weaker fee income growth and likely compression in net
interest margins. Meanwhile, we are revising our earnings estimates upwards
for FY12 by 4.6% to factor in lower credit costs as a result of improving asset
quality. At CMP, the stock trades at 1.6x its FY11E ABV and 1.2x its FY12E ABV.
We maintain our ‘BUY’ rating and price target on the stock.
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