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UBS Investment Research
Union Bank
Asset quality trends improve
„ Event: Quality of earnings improve; Asset quality positive surprise
Union Bank reported PAT of Rs 5.97 bn (flat Y/Y) better than UBSe of Rs 5.7 bn
while NII came slightly ahead of expectations at Rs 17.2 bn. Key highlights of the
quarter were 1) NPL additions halve to 1.2% (from 2.4%); consequently credit
costs drop sharply 2) NIMs stable q/q at 3.4% 3) Staff expenses doubled q/q on
account of one off retirement employee provisions of (Rs3.7 bn) 4) Provision
coverage drops to 67% from 70% in Q3. Asset quality trends were the highlights.
„ Impact: Maintain profit estimate
Union bank has struggled with high NPL additions in FY11(at 2.4%) and
cyclically we expect it to improve in FY12 to about 1.6%. Consequently we expect
credit costs to decline by 14% in FY12. Second boost for earnings would be
decline in staff costs due to absence of one-off retirement pension liability. While
we maintain our profit estimates our EPS estimates stand revised upwards by
12%/14% due to revision in number of shares in FY11.
„ Action: Correction and improvement in asset quality prompt an upgrade
UNBK has corrected by 18% in last one month (25% in last six months) post
which valuations now trade at 1.2xMarch 12 PBR which we consider attractive.
Risk on asset quality has also subsided which prompts us to upgrade the stock to a
Neutral from Sell. Weak liability franchise, declining NPL coverage and low
capital ratios are some concerns which still persist.
„ Valuation: Upgrade rating to Neutral, PT to 350 (from 340 earlier)
We upgrade our PT by 3% due to better FY11 actual. We derive our PT using
residual income model. At our PT stock trades at 1.4xFY12 book.
Q Union Bank
Union Bank of India is a public bank with a strong presence in western India
and parts of north India, in particular Uttar Pradesh. The bank has 2,821
branches and 2,127 ATMs, covering 1,500 centres and a customer base of 20m.
The company has opened representative offices in Shanghai, Dubai and Hong
Kong. The government of India holds a 55.4% stake in the bank.
Q Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Union Bank
Asset quality trends improve
„ Event: Quality of earnings improve; Asset quality positive surprise
Union Bank reported PAT of Rs 5.97 bn (flat Y/Y) better than UBSe of Rs 5.7 bn
while NII came slightly ahead of expectations at Rs 17.2 bn. Key highlights of the
quarter were 1) NPL additions halve to 1.2% (from 2.4%); consequently credit
costs drop sharply 2) NIMs stable q/q at 3.4% 3) Staff expenses doubled q/q on
account of one off retirement employee provisions of (Rs3.7 bn) 4) Provision
coverage drops to 67% from 70% in Q3. Asset quality trends were the highlights.
„ Impact: Maintain profit estimate
Union bank has struggled with high NPL additions in FY11(at 2.4%) and
cyclically we expect it to improve in FY12 to about 1.6%. Consequently we expect
credit costs to decline by 14% in FY12. Second boost for earnings would be
decline in staff costs due to absence of one-off retirement pension liability. While
we maintain our profit estimates our EPS estimates stand revised upwards by
12%/14% due to revision in number of shares in FY11.
„ Action: Correction and improvement in asset quality prompt an upgrade
UNBK has corrected by 18% in last one month (25% in last six months) post
which valuations now trade at 1.2xMarch 12 PBR which we consider attractive.
Risk on asset quality has also subsided which prompts us to upgrade the stock to a
Neutral from Sell. Weak liability franchise, declining NPL coverage and low
capital ratios are some concerns which still persist.
„ Valuation: Upgrade rating to Neutral, PT to 350 (from 340 earlier)
We upgrade our PT by 3% due to better FY11 actual. We derive our PT using
residual income model. At our PT stock trades at 1.4xFY12 book.
Q Union Bank
Union Bank of India is a public bank with a strong presence in western India
and parts of north India, in particular Uttar Pradesh. The bank has 2,821
branches and 2,127 ATMs, covering 1,500 centres and a customer base of 20m.
The company has opened representative offices in Shanghai, Dubai and Hong
Kong. The government of India holds a 55.4% stake in the bank.
Q Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
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