Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment thesis
We initiate coverage on Union Bank of India (UNBK) with a “HOLD” rating. Our 3 stage DDM based weighted average 12-mnth target price of INR 274 implies 12% upside potential. In our view, UNBK is in position to deliver 17% CAGR in earnings between FY2012-14E on the back of:
→ Stable NIMs, acceleration in credit growth (seen at 21% CAGR over FY12E-FY14E), and steady CASA ratio of 32%. The bank will thus likely deliver average RoE of 15% (in the median range of our PSU coverage).
→ While UNBK has been reporting a decline in gross NPA ratios, impaired assets (including restructured loans) for the period 1QFY11 (at 6.6% of loans) is a cause for concern. We believe the risk to our estimates remains, as the economy slows down.
Valuation
UNBK is currently trading at 0.8x FY13E book value vs. RoE of 15%. We initiate coverage with a “HOLD” rating and a 3 stage DDM based weighted average based price target of INR 274. Our 3-stage DDM model assumes a discount rate of 14.8% and a dividend payout ratio of 17% over FY2012-14E. Slow credit growth, stabilizing margins along with high credit cost and low RoE will be the near-term catalysts.
Key risks
Key risks to our target price and investment view:
→ Any erosion in CASA ratio as the bank accelerates growth would negatively impact its spreads.
→ Continued low business volumes could limit earnings growth.
→ MTM hit in a turning interest rate cycle, while UNBK has a low duration of around 1.9 years.
→ Certain stressed sector from generation exposed to Rajasthan SEB along with SME exposure with risk to rates rising further. Tier-1 CRAR is running at 8.7%; hence the bank would need to raise capital to fund growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment thesis
We initiate coverage on Union Bank of India (UNBK) with a “HOLD” rating. Our 3 stage DDM based weighted average 12-mnth target price of INR 274 implies 12% upside potential. In our view, UNBK is in position to deliver 17% CAGR in earnings between FY2012-14E on the back of:
→ Stable NIMs, acceleration in credit growth (seen at 21% CAGR over FY12E-FY14E), and steady CASA ratio of 32%. The bank will thus likely deliver average RoE of 15% (in the median range of our PSU coverage).
→ While UNBK has been reporting a decline in gross NPA ratios, impaired assets (including restructured loans) for the period 1QFY11 (at 6.6% of loans) is a cause for concern. We believe the risk to our estimates remains, as the economy slows down.
Valuation
UNBK is currently trading at 0.8x FY13E book value vs. RoE of 15%. We initiate coverage with a “HOLD” rating and a 3 stage DDM based weighted average based price target of INR 274. Our 3-stage DDM model assumes a discount rate of 14.8% and a dividend payout ratio of 17% over FY2012-14E. Slow credit growth, stabilizing margins along with high credit cost and low RoE will be the near-term catalysts.
Key risks
Key risks to our target price and investment view:
→ Any erosion in CASA ratio as the bank accelerates growth would negatively impact its spreads.
→ Continued low business volumes could limit earnings growth.
→ MTM hit in a turning interest rate cycle, while UNBK has a low duration of around 1.9 years.
→ Certain stressed sector from generation exposed to Rajasthan SEB along with SME exposure with risk to rates rising further. Tier-1 CRAR is running at 8.7%; hence the bank would need to raise capital to fund growth.
No comments:
Post a Comment