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EARNINGS REVIEW
Union Bank (UNBK.BO)
Neutral Equity Research
Below expectations on lower NIMs and fees; retain Neutral
Significantly below estimates on NIM compression, lower fees
Union Bank of India reported net profit of Rs4.6bn down 23% yoy, 34%
below GSe and 24% below BB consensus. Key reasons for disappointing
performance: (1) NII grew 18% yoy (10% below GSe) as margins declined -
39bps qoq and loan growth moderated to 17% from 27% in FY11.
Management is now guiding for 19% growth yoy in advances vs earlier
estimate of 22%. (2) Fee income remained muted growing just 5% yoy.
This was offset by higher treasury income of Rs1.7bn up vs GSe of 500mn.
(3) Expenses largely driven by salaries increased 23% yoy, beating our
estimate by 7%. We expect this to moderate on a high base. (4) While
slippages were high at 2.5%, the gross NPLs increased only 3% qoq as
bank also had high recoveries and write-offs this quarter. Management
indicated that of the Rs7.7bn of slippages nearly Rs5.5bn was due to move
to system-based NPL reporting of loans below Rs500,000. Apparently, this
will likely be there even in Sept quarter as not all the agri loans are under
system-based recognition. The gross and net NPL ratio was 2.6% and
1.3%. UNBK had to make loan loss provision of 1% of loans at Rs3.6 bn
(vs Rs1.1bn in 1QFY11, 8% higher than our estimates), the higher
provisions to meet RBI new norms.
Reducing estimates and 12-month target price; retain Neutral
We reduce our earnings estimates for FY12E-FY14E by 5%-10%, to reflect
lower margins and fee income, and our GS CAMELOT-based 12-m TP to
Rs340 from Rs350 despite rolling forward the target BVPS to June 2012,
but we retain our Neutral rating. Risks: higher (lower) NPL formation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Union Bank (UNBK.BO)
Neutral Equity Research
Below expectations on lower NIMs and fees; retain Neutral
Significantly below estimates on NIM compression, lower fees
Union Bank of India reported net profit of Rs4.6bn down 23% yoy, 34%
below GSe and 24% below BB consensus. Key reasons for disappointing
performance: (1) NII grew 18% yoy (10% below GSe) as margins declined -
39bps qoq and loan growth moderated to 17% from 27% in FY11.
Management is now guiding for 19% growth yoy in advances vs earlier
estimate of 22%. (2) Fee income remained muted growing just 5% yoy.
This was offset by higher treasury income of Rs1.7bn up vs GSe of 500mn.
(3) Expenses largely driven by salaries increased 23% yoy, beating our
estimate by 7%. We expect this to moderate on a high base. (4) While
slippages were high at 2.5%, the gross NPLs increased only 3% qoq as
bank also had high recoveries and write-offs this quarter. Management
indicated that of the Rs7.7bn of slippages nearly Rs5.5bn was due to move
to system-based NPL reporting of loans below Rs500,000. Apparently, this
will likely be there even in Sept quarter as not all the agri loans are under
system-based recognition. The gross and net NPL ratio was 2.6% and
1.3%. UNBK had to make loan loss provision of 1% of loans at Rs3.6 bn
(vs Rs1.1bn in 1QFY11, 8% higher than our estimates), the higher
provisions to meet RBI new norms.
Reducing estimates and 12-month target price; retain Neutral
We reduce our earnings estimates for FY12E-FY14E by 5%-10%, to reflect
lower margins and fee income, and our GS CAMELOT-based 12-m TP to
Rs340 from Rs350 despite rolling forward the target BVPS to June 2012,
but we retain our Neutral rating. Risks: higher (lower) NPL formation.
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