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Healthy operating performance; margins remain stable: Union Bank of India
(UBI) reported Q4FY11 PAT of Rs6.0bn, largely flattish both on a YoY (up 0.7%)
as well as on a QoQ (up 3.1%) basis. Net Interest Income (NII) for the quarter
grew by 22.9% YoY and 6.2% QoQ to Rs17.2bn on account of strong 26.2% YoY
and 14.4% QoQ advances growth coupled with sequentially stable margins at
3.44%. The increase in the yield on funds during the quarter (43bps QoQ) was
marginally higher than the 38bps QoQ increase in the cost of funds resulting into
stable margins. However, on adjusting for the interest on IT refund of Rs300mn
in Q4FY11 and Rs2.1bn for full year FY11, the reported margins would have
been lower by ~5bps and ~9bps for the quarter and the full year respectively.
Deposits grew by 19.1% YoY and 8.5% QoQ on the back of 10.9% QoQ increase
in the term deposits. Driven by relatively slower growth in CASA deposits (3.5%
QoQ), the CASA ratio contracted by ~150bps QoQ to 31.8%. Non‐interest
income increased by 21.7% QoQ on account of a strong 58% QoQ increase in the
treasury income coupled with a healthy 17.4% QoQ increase in the core fee
income. Pension liability for the bank towards the serving and retired employees
stood at Rs16.9bn and Rs7.1bn respectively.
Asset quality stable; slippages continue to decline: Asset quality remained
stable with GNPAs up marginally by 1.6% QoQ, driven by lower slippages during
the quarter. Provision coverage ratio including technical write‐offs declined
marginally to 67.58% from ~70% last quarter. For the second consecutive
quarter gross slippages trended downwards as it declined sharply to Rs4.06bn
(or 1.3% annualized) v/s Rs7.65bn (or 2.9% annualized) in Q3FY11. The
cumulative restructured assets increased by 6.8% QoQ and now stand at 3.7% of
outstanding advances, while the cumulative slippages from the restructured
portfolio are at 18.0%.
Valuation and Outlook: UBI has delivered healthy operating performance, with
slippages trending downwards. Moreover, sequentially stable margins also
surprised positively. However, going forward margins are likely to witness some
pressure, largely in line with the industry trend. On the other hand, we expect
slippages to remain elevated in the coming few quarters due to migration to
system based NPL recognition method. However, despite this we expect UBI to
report strong earnings CAGR of 42% during FY11‐13E with RoE’s improving from
18% in FY11 to ~24% in FY13. UBI continues to remain our one of our top picks
in the PSU space. At CMP, the stock trades at 1.4x its FY12E ABV and 1.1x its
FY13E ABV. We maintain our ‘BUY’ rating on the stock with a price target of
Rs451 (1.5x its FY13E ABV).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Healthy operating performance; margins remain stable: Union Bank of India
(UBI) reported Q4FY11 PAT of Rs6.0bn, largely flattish both on a YoY (up 0.7%)
as well as on a QoQ (up 3.1%) basis. Net Interest Income (NII) for the quarter
grew by 22.9% YoY and 6.2% QoQ to Rs17.2bn on account of strong 26.2% YoY
and 14.4% QoQ advances growth coupled with sequentially stable margins at
3.44%. The increase in the yield on funds during the quarter (43bps QoQ) was
marginally higher than the 38bps QoQ increase in the cost of funds resulting into
stable margins. However, on adjusting for the interest on IT refund of Rs300mn
in Q4FY11 and Rs2.1bn for full year FY11, the reported margins would have
been lower by ~5bps and ~9bps for the quarter and the full year respectively.
Deposits grew by 19.1% YoY and 8.5% QoQ on the back of 10.9% QoQ increase
in the term deposits. Driven by relatively slower growth in CASA deposits (3.5%
QoQ), the CASA ratio contracted by ~150bps QoQ to 31.8%. Non‐interest
income increased by 21.7% QoQ on account of a strong 58% QoQ increase in the
treasury income coupled with a healthy 17.4% QoQ increase in the core fee
income. Pension liability for the bank towards the serving and retired employees
stood at Rs16.9bn and Rs7.1bn respectively.
Asset quality stable; slippages continue to decline: Asset quality remained
stable with GNPAs up marginally by 1.6% QoQ, driven by lower slippages during
the quarter. Provision coverage ratio including technical write‐offs declined
marginally to 67.58% from ~70% last quarter. For the second consecutive
quarter gross slippages trended downwards as it declined sharply to Rs4.06bn
(or 1.3% annualized) v/s Rs7.65bn (or 2.9% annualized) in Q3FY11. The
cumulative restructured assets increased by 6.8% QoQ and now stand at 3.7% of
outstanding advances, while the cumulative slippages from the restructured
portfolio are at 18.0%.
Valuation and Outlook: UBI has delivered healthy operating performance, with
slippages trending downwards. Moreover, sequentially stable margins also
surprised positively. However, going forward margins are likely to witness some
pressure, largely in line with the industry trend. On the other hand, we expect
slippages to remain elevated in the coming few quarters due to migration to
system based NPL recognition method. However, despite this we expect UBI to
report strong earnings CAGR of 42% during FY11‐13E with RoE’s improving from
18% in FY11 to ~24% in FY13. UBI continues to remain our one of our top picks
in the PSU space. At CMP, the stock trades at 1.4x its FY12E ABV and 1.1x its
FY13E ABV. We maintain our ‘BUY’ rating on the stock with a price target of
Rs451 (1.5x its FY13E ABV).
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