15 June 2015

Union Bank of India (Annual Report Analysis) : Time to bottom fish. Maintain BUY :: HDFC Securities

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Time to bottom fish Over the last couple of years Union Bank of India’s (UNBK) management has steered admirably well in a stressed environment by (1) moderating growth rate, (2) adding granularity to B/S and (3) focusing on RWA to conserve capital. UNBK’s FY15 Annual Report reflects some of these initiatives.  Concentration risk abates: Within UNBK’s non-PSL segment (70% of total loans), exposure to corporates de-grew by 8% to 31% of total loans vs. 38% in FY14. This was primarily achieved by its cautious stance towards stressed sectors like Iron & Steel (-7%), Infra (flat) and Textile (+2%) vs. headline loan growth of 12%. This also aided in reducing concentration risk. Exposure to top 20 borrowers declined sharply to 13% vs. 24%.  Rating outlook upgraded: During FY15, S&P upgraded UNBK’s outlook from ‘negative’ to ‘stable’. And in April- 15, Moody’s upgraded the bank’s outlook from ‘stable’ to ‘positive’. Further long term issuer credit rating was reaffirmed at ‘BBB-‘ by S&P and ‘Baa3’ by Moody’s. These ratings suggest that the bank has adequate capacity to meet its financial commitments.  Conservative actuarial assumption: UNBK’s actuarial assumptions for arriving at pension and gratuity liabilities appear conservative. It has factored in a discount rate of <8 0.64x="" 10th="" 19="" 1="" 3="" 4.6bn="" 5.1bn="" 5="" 7.4bn="" 7.5="" 8.75="" a="" add="" adequately="" agri="" albk="" already="" and="" are="" asset="" at="" banks="" being="" below="" better="" bipartite="" boi="" but="" buy.="" by="" cagr="" capital="" captures="" cbk="" check.="" comfort.="" conservation.="" conservative="" constrained="" continued="" continuity="" cost="" deposits="" deviation="" during="" emphasis="" ensure="" escalation="" estimates.="" ex-sebs="" exposure.="" exposure="" fallen="" fell="" focus="" for="" form="" front="" further="" fy13-15="" fy15="" fy17e="" gnpa="" granularity="" growth.="" growth="" guidance="" has="" have="" high="" however="" ier-i="" impressed="" improving="" in-line="" in="" incremental="" its="" keep="" like="" low="" lower="" made="" maintain="" maintaining="" management="" mere="" moderate="" non-corporate="" non-psl="" obc="" of="" on="" our="" p="" peers:="" pl="" pnb="" pool="" potential="" provisions="" psl="" quality="" rate="" ratio="" reduces="" reported="" requirements="" restructured="" risk="" roe="" rs="" rwa="" s="" salary="" seems="" segments.="" segments="" service="" settlement="" shall="" shedding="" short.="" slippages.="" slippages="" smaller="" stable="" std.="" than="" the="" till="" to="" together="" unbk="" under="" valuation="" valuations:="" via="" view="" vs.="" wage="" was="" we="" weak="" well="" which="" while="" will="" with="" within="">


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