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Union Bank of India
Key highlights of 3QFY11 and what can be expected for the rest of FY11
�� Loan book grew by 7.9% q-q and 25.8% y-y in 3QFY11, with contributions coming
from retail loans (29% y-y), corporate loans (34% y-y) and SME loans (15% y-y).
This loan growth was backed by a deposit growth of 23% y-y – CASA deposits
grew 27% y-y and term deposits 22% y-y. CASA ratio increased to 33.3% from
32.7% in 2QFY11.
�� NIM went up to 3.44% in 3QFY11 from 3.35% in 2QFY11 on the back of 185bp q-q
increase in LDR to 71.7%. Net interest income grew by 5.2% q-q and 51.8% y-y on
the back of a y-y NIM expansion (NIM expanded from 2.7% in 3QFY10 to 3.4% in
3QFY11). Non-interest income declined 3.2% q-q and increased 6.2% y-y.
�� GNPLs were largely flat sequentially, increasing 1.6% q-q – GNPL ratio closed at
2.7%. NNPL ratio closed at 1.2% on the back of a core provision cover of 55%
(70.2% including technical write-offs). Loan-loss provisions for 3QFY11 at INR4b
were 40% higher than our estimates – 112bp of average loans.
What the bank needs to achieve in 4QFY11 to meet our expectations
Loans of INR105b will have to be disbursed in 4QFY11 to meet our loan growth
expectation of 21% for FY11. We are keeping NIMs flat at 3.4% level in 4QFY11. We
need to bear in mind the higher incidence of priority sector loans in 4Q (which should
drag loan yields down) and a further pass-through of higher funding costs. We expect
LLPs to drop marginally to 80bp for 4QFY11.
What to expect in FY12
We are budgeting for a loan growth of 22%, NIM of 3.1%, core fee income growth of
28% – leading to a PAT growth of 31%. We expect loan-loss provisions to drop to 70bp
for FY12. We are factoring in a cost-income ratio of 42% for FY12.
Valuation: We retain our HOLD on UNBK with a TP of INR350 (revised from INR380).
The stock trades at 1.25x our FY12E adjusted BV for adjusted ROE of 23.5%. Our TP
is based on a three-stage residual income model, which assumes a risk-free rate of
8.3%, equity risk premium of 6%, terminal growth rate of 4% and beta of 1.1. Key risks
to TP are: higher-than-expected NIM compression and LLPs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Union Bank of India
Key highlights of 3QFY11 and what can be expected for the rest of FY11
�� Loan book grew by 7.9% q-q and 25.8% y-y in 3QFY11, with contributions coming
from retail loans (29% y-y), corporate loans (34% y-y) and SME loans (15% y-y).
This loan growth was backed by a deposit growth of 23% y-y – CASA deposits
grew 27% y-y and term deposits 22% y-y. CASA ratio increased to 33.3% from
32.7% in 2QFY11.
�� NIM went up to 3.44% in 3QFY11 from 3.35% in 2QFY11 on the back of 185bp q-q
increase in LDR to 71.7%. Net interest income grew by 5.2% q-q and 51.8% y-y on
the back of a y-y NIM expansion (NIM expanded from 2.7% in 3QFY10 to 3.4% in
3QFY11). Non-interest income declined 3.2% q-q and increased 6.2% y-y.
�� GNPLs were largely flat sequentially, increasing 1.6% q-q – GNPL ratio closed at
2.7%. NNPL ratio closed at 1.2% on the back of a core provision cover of 55%
(70.2% including technical write-offs). Loan-loss provisions for 3QFY11 at INR4b
were 40% higher than our estimates – 112bp of average loans.
What the bank needs to achieve in 4QFY11 to meet our expectations
Loans of INR105b will have to be disbursed in 4QFY11 to meet our loan growth
expectation of 21% for FY11. We are keeping NIMs flat at 3.4% level in 4QFY11. We
need to bear in mind the higher incidence of priority sector loans in 4Q (which should
drag loan yields down) and a further pass-through of higher funding costs. We expect
LLPs to drop marginally to 80bp for 4QFY11.
What to expect in FY12
We are budgeting for a loan growth of 22%, NIM of 3.1%, core fee income growth of
28% – leading to a PAT growth of 31%. We expect loan-loss provisions to drop to 70bp
for FY12. We are factoring in a cost-income ratio of 42% for FY12.
Valuation: We retain our HOLD on UNBK with a TP of INR350 (revised from INR380).
The stock trades at 1.25x our FY12E adjusted BV for adjusted ROE of 23.5%. Our TP
is based on a three-stage residual income model, which assumes a risk-free rate of
8.3%, equity risk premium of 6%, terminal growth rate of 4% and beta of 1.1. Key risks
to TP are: higher-than-expected NIM compression and LLPs.
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