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Union Bank of India- Business growth picks up, slippages demur…
Union Bank of India (UBI) reported NII of | 1616 crore ahead of our
estimates. This was on account of expansion in NIM to 3.44% and healthy
loan growth of 26% YoY to | 133787 crore with continued traction in
CASA deposits, which now stand at 33.3%. Deposit growth also picked
up pace by registering 5% QoQ, 24% YoY growth to | 186655 crore. NIM
improved on account of ~40 bps YoY, 11 bps QoQ growth to 8.4% while
CoD was up 10 bps QoQ and down 23 bps YoY to 5.16%. The tendency of
CoD is to move with a lag. Hence, we see a 15-20 bps moderation in NIM
in Q4FY11 and expect FY11E NIM at 3% for UBI. Provisions stayed high at
| 400 crore against | 161 crore in Q3FY10 and | 599 crore in Q2FY11. PAT
was recorded at | 580 crore (our estimate of | 541 crore). We expect 21%
CAGR in PAT over FY10-12E to | 3142 crore.
Asset quality woes get calmed
GNPA improved to 2.7% in Q3FY11 from 2.8% in Q2FY11 while NNPA
stayed flat at 1.2% (though it added | 136 crore in absolute terms). PCR
stood at 70%. The bank has provided | 361 crore for NPA this quarter
against | 629 crore in Q2FY11 on account of lower slippages. The
management is expecting provisions to stay high even for Q4FY11. Lower
provisioning requirement QoQ led to an improvement in PAT from | 304
crore in Q2FY11 to | 580.
The bank restructured assets worth | 140 crore in Q3FY11. Cumulative
restructured assets now stand at | 5300 crore (~4% of loan book). Total
15% of these accounts have slipped to NPA so far. We expect it to peak out
at 20% in the coming two quarters.
We have built in higher credit cost even for FY12E, which resulted in a
revision in PAT down to | 2725 crore. We reiterate our view that asset
quality pains will continue in FY11 and ease in H1FY12, on account of
higher provisioning. We expect GNPA @ 2.6% by FY12E and improvement
in NNPA to 0.7%.
Valuation
We have lowered our estimate for RoA and RoE to 1.15% and 21%,
respectively, on account of higher provisioning for FY12E. We believe the
bank’s inherent core business strength although marred by asset quality
concerns for the past two quarters improved this quarter. We value the
bank at | 362 (1.5x FY12E ABV) and recommend an ADD rating at the CMP.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Union Bank of India- Business growth picks up, slippages demur…
Union Bank of India (UBI) reported NII of | 1616 crore ahead of our
estimates. This was on account of expansion in NIM to 3.44% and healthy
loan growth of 26% YoY to | 133787 crore with continued traction in
CASA deposits, which now stand at 33.3%. Deposit growth also picked
up pace by registering 5% QoQ, 24% YoY growth to | 186655 crore. NIM
improved on account of ~40 bps YoY, 11 bps QoQ growth to 8.4% while
CoD was up 10 bps QoQ and down 23 bps YoY to 5.16%. The tendency of
CoD is to move with a lag. Hence, we see a 15-20 bps moderation in NIM
in Q4FY11 and expect FY11E NIM at 3% for UBI. Provisions stayed high at
| 400 crore against | 161 crore in Q3FY10 and | 599 crore in Q2FY11. PAT
was recorded at | 580 crore (our estimate of | 541 crore). We expect 21%
CAGR in PAT over FY10-12E to | 3142 crore.
Asset quality woes get calmed
GNPA improved to 2.7% in Q3FY11 from 2.8% in Q2FY11 while NNPA
stayed flat at 1.2% (though it added | 136 crore in absolute terms). PCR
stood at 70%. The bank has provided | 361 crore for NPA this quarter
against | 629 crore in Q2FY11 on account of lower slippages. The
management is expecting provisions to stay high even for Q4FY11. Lower
provisioning requirement QoQ led to an improvement in PAT from | 304
crore in Q2FY11 to | 580.
The bank restructured assets worth | 140 crore in Q3FY11. Cumulative
restructured assets now stand at | 5300 crore (~4% of loan book). Total
15% of these accounts have slipped to NPA so far. We expect it to peak out
at 20% in the coming two quarters.
We have built in higher credit cost even for FY12E, which resulted in a
revision in PAT down to | 2725 crore. We reiterate our view that asset
quality pains will continue in FY11 and ease in H1FY12, on account of
higher provisioning. We expect GNPA @ 2.6% by FY12E and improvement
in NNPA to 0.7%.
Valuation
We have lowered our estimate for RoA and RoE to 1.15% and 21%,
respectively, on account of higher provisioning for FY12E. We believe the
bank’s inherent core business strength although marred by asset quality
concerns for the past two quarters improved this quarter. We value the
bank at | 362 (1.5x FY12E ABV) and recommend an ADD rating at the CMP.
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