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United Bank of India ---------------------------------------------------------Maintain OUTPERFORM
Healthy set of 4Q results
Anish Tawakley / Research Analyst / 91 22 6777 3747 / anish.tawakley@credit-suisse.com
● UBI’s 4Q operating performance was strong, although net profit
was lower than estimates due to higher pension provisions
(provided in excess of requirements) partly offset by a lower tax
rate.
● Loan growth for FY11 was healthy at 26% YoY (6% QoQ) and
LDR was stable at 69% (lowest among peers). NIMs held up well
at 3.1% (down only 7 bp QoQ) and CASA share remained high at
41%. Management expects to grow at 20%+ in FY12 and maintain
3% NIMs.
● While slippages were higher in the fourth quarter (similar to peers)
at 2.6% (1.7% in 3Q) leading to 0.9% credit costs, net slippages
were stable at 0.7%. Overall asset quality continued to be
comfortable with 2.5% gross NPLs (down 42 bp QoQ) and 72%
coverage.
● We marginally increase our target price to Rs136 (at 1.0x FY12E
book value) from Rs129. Given the robust deposit franchise, low
LDRs (69%), 74% operating profit CAGR over FY11E-13E
(FY12E-13E RoAs of 0.8-0.9%) and trading at 0.8x FY12E book,
UBI is among our preferred picks in the sector (potential upside of
24% from the current level).
Healthy operating performance
Loan growth was robust at 26% YoY (+6% QoQ) and growth was
broadbased across all segments. Management expects loan growth of
over 20% in FY12. Deposit growth lagged loan growth at 14% YoY but
loan-deposit ratio is still low at 69% (lowest among peers). Margins
were down only 7 bp QoQ to 3.1% in line with our estimate. The bank
is confident of maintaining margins of around 3.0% levels going
forward (the bank has further room to improve LDRs). Share of CASA
deposits continued to be robust at 41% (+55 bp QoQ) – highest among
peers. Trading gains were at Rs1.1 bn during the quarter (25% of preprovision profits). The bank has provided Rs1.45 bn for pension
provisions during the quarter, which had a drag on the profitability
during the quarter. While the full-year pension requirements are only at
Rs1.5 bn (Rs1.0 bn for retirees and Rs0.5 bn for the existing
employees), the bank has made Rs2.15 bn in FY11. Going forward, the
bank needs only Rs0.4 bn per year (given the bank has made excess
provisions) over the next four years. Its Tier 1 is comfortable at 8.9%.
Gross slippages during the quarter were 2.6% of the loans (Rs3.3 bn)
annualised (vs 1.5% over the past two quarters). 40% of the slippages
were from the restructured loans. This led to credit costs of 0.9%
during the quarter (vs 0.5% in 3Q11). However, net slippages were
stable at 0.7%, led by upgradations and recoveries. Overall asset
quality was healthy with gross NPLs declining 40 bp QoQ to 2.5%.
Coverage continued to be comfortable at 72% (including writeoffs).
The restructured assets outstanding were 3.5% of loans (restructured
loans were down 16% QoQ) and cumulative slippages from the
restructured assets were at 13%. After the results, we marginally
revise up our FY12-13 EPS estimate, by 1-3%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Bank of India ---------------------------------------------------------Maintain OUTPERFORM
Healthy set of 4Q results
Anish Tawakley / Research Analyst / 91 22 6777 3747 / anish.tawakley@credit-suisse.com
● UBI’s 4Q operating performance was strong, although net profit
was lower than estimates due to higher pension provisions
(provided in excess of requirements) partly offset by a lower tax
rate.
● Loan growth for FY11 was healthy at 26% YoY (6% QoQ) and
LDR was stable at 69% (lowest among peers). NIMs held up well
at 3.1% (down only 7 bp QoQ) and CASA share remained high at
41%. Management expects to grow at 20%+ in FY12 and maintain
3% NIMs.
● While slippages were higher in the fourth quarter (similar to peers)
at 2.6% (1.7% in 3Q) leading to 0.9% credit costs, net slippages
were stable at 0.7%. Overall asset quality continued to be
comfortable with 2.5% gross NPLs (down 42 bp QoQ) and 72%
coverage.
● We marginally increase our target price to Rs136 (at 1.0x FY12E
book value) from Rs129. Given the robust deposit franchise, low
LDRs (69%), 74% operating profit CAGR over FY11E-13E
(FY12E-13E RoAs of 0.8-0.9%) and trading at 0.8x FY12E book,
UBI is among our preferred picks in the sector (potential upside of
24% from the current level).
Healthy operating performance
Loan growth was robust at 26% YoY (+6% QoQ) and growth was
broadbased across all segments. Management expects loan growth of
over 20% in FY12. Deposit growth lagged loan growth at 14% YoY but
loan-deposit ratio is still low at 69% (lowest among peers). Margins
were down only 7 bp QoQ to 3.1% in line with our estimate. The bank
is confident of maintaining margins of around 3.0% levels going
forward (the bank has further room to improve LDRs). Share of CASA
deposits continued to be robust at 41% (+55 bp QoQ) – highest among
peers. Trading gains were at Rs1.1 bn during the quarter (25% of preprovision profits). The bank has provided Rs1.45 bn for pension
provisions during the quarter, which had a drag on the profitability
during the quarter. While the full-year pension requirements are only at
Rs1.5 bn (Rs1.0 bn for retirees and Rs0.5 bn for the existing
employees), the bank has made Rs2.15 bn in FY11. Going forward, the
bank needs only Rs0.4 bn per year (given the bank has made excess
provisions) over the next four years. Its Tier 1 is comfortable at 8.9%.
Gross slippages during the quarter were 2.6% of the loans (Rs3.3 bn)
annualised (vs 1.5% over the past two quarters). 40% of the slippages
were from the restructured loans. This led to credit costs of 0.9%
during the quarter (vs 0.5% in 3Q11). However, net slippages were
stable at 0.7%, led by upgradations and recoveries. Overall asset
quality was healthy with gross NPLs declining 40 bp QoQ to 2.5%.
Coverage continued to be comfortable at 72% (including writeoffs).
The restructured assets outstanding were 3.5% of loans (restructured
loans were down 16% QoQ) and cumulative slippages from the
restructured assets were at 13%. After the results, we marginally
revise up our FY12-13 EPS estimate, by 1-3%.
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