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Results inline; slippages surprise positively |
HOLD
CMP: Rs 141 Target Price: Rs 150
n UNTDB’s Q2FY11 earnings were in line with our estimates with NII at Rs5.3bn and PAT at Rs1.1bn
n Other income growth strong at 26%qoq to Rs1.5bn; the bank has used robust other income for provisions
n The slippages have surprised positively at Rs2bn (Rs2.5bn in Q1FY11, our exp – Rs2.5bn). The NPAs have remained largely stable during the quarter. PCR at 50%, 71.8% as per RBI norm
n Valuations not unreasonable at 1.7x FY11E/1.3x FY12E ABV. We downgrade to HOLD with TP of Rs150, 1.4x FY12E ABV; 15% discount to our valuations for mid-tier PSU banks
NII grew inline with estimates…
UNTDB NII for Q2FY11 grew by 48% yoy to Rs5.3bn inline with expectations of
Rs5.2bn. The NII growth was driven by 13% yoy (3.7% qoq) growth in advances and
stable NIMs at 2.7%.
…As NIMs remain stable
The NIMs expanded by ~6bps qoq driven by (1) a marginal12bps expansion in CDR to
67% and (2) a higher 8% qoq growth in retail advances and (3) further replacement of
the low yielding loans.
Driven by these, the yield on advances expanded by 30bps qoq fully mitigating 18bps
rise in cost of funds. UNTDB has raised its base rate by 50bps in the first fortnight of
October 2010 alongside revision in the deposit rates. We believe that this will help the
NIMs sustain at current levels along with further expansion in CD ratio.
NII grew inline with estimates…
UNTDB NII for Q2FY11 grew by 48% yoy to Rs5.3bn inline with expectations of
Rs5.2bn. The NII growth was driven by 13% yoy (3.7% qoq) growth in advances and
stable NIMs at 2.7%.
…As NIMs remain stable
The NIMs expanded by ~6bps qoq driven by (1) a marginal12bps expansion in CDR to
67% and (2) a higher 8% qoq growth in retail advances and (3) further replacement of
the low yielding loans.
Driven by these, the yield on advances expanded by 30bps qoq fully mitigating 18bps
rise in cost of funds. UNTDB has raised its base rate by 50bps in the first fortnight of
October 2010 alongside revision in the deposit rates. We believe that this will help the
NIMs sustain at current levels along with further expansion in CD ratio.
Capital adequacy remains comfortable
UNTDB’s CAR remained comfortable at 12.7% with tier I CAR of 8.4%. UNTDB has
headroom for raising innovative perpetual debt capital from the government. In terms of
preference share capital UNTDB has almost exhausted its limits.
Valuations and view
At the CMP, the stock is quoting at 1.7x FY11E and 1.3x FY12E ABV. While we continue to
remain upbeat about the turnaround in the bank, the valuations look little stretched
compared with banks like Allahabad Bank, Corp Bank and Andhra Bank. We have valued
the stock at 1.4x FY12E ABV (15% discount to our valuations for mid-tier PSU banks). We
downgrade the stock to HOLD with TP of Rs150.
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