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UBS Investment Research
Union Bank
W eak quarter; some silver linings
Event: Q1FY12 earnings below estimates
Union Bank reported net income of Rs4.6bn (-23% y/y, -22% q/q) below UBS-e of
Rs6.2bn. NII too came below expectations as loan growth was lower than
estimates. Key highlights: 1) gross advances grew +17% y/y, declined 5% q/q 2)
Slippages spiked to 2% (annualized) but higher recoveries led to stable NPLs q/q
3) Higher provisions due to one off costs due to change in guidelines; adjusting for
which credit costs were lower than expected at 0.4%.4) NIMs witnessed a 34bps
(q/q) decline to 3.1%. 5) Fee income grew 5% y/y, treasury gains of Rs 1.7 bn.
Impact: Reduce estimates by 4% for FY12/13E
We reduce our loan growth estimates for FY12/13 from 19% to 17% on account of
slowing credit growth. We build in a NIM decline of 25bps y/y in FY12 lower than
management guidance of ~15 bps decline. Higher treasury income (in Q1) offsets
lower growth in core fee income that we now build in.
Action: Wait for a better entry point
Nearly 130 bn of agri accounts (9% of overall loans) are yet to transition to system
based NPL recognition which could lead to another quarter of high NPL addition.
UNBK is trading at a discount to PNB/BOB despite attractive RoEs; in our view
improvement in asset quality/lower slippages would be pertinent to bridge the gap
Valuation: Neutral, PT Rs 350
We value the stock using residual income method at Rs 350, which implies 1.2x
FY13E book and 6x FY13E earnings.
Union Bank
Union Bank of India is a public bank with a strong presence in western India
and parts of north India, in particular Uttar Pradesh. The bank has 2,821
branches and 2,127 ATMs, covering 1,500 centres and a customer base of 20m.
The company has opened representative offices in Shanghai, Dubai and Hong
Kong. The government of India holds a 55.4% stake in the bank.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Union Bank
W eak quarter; some silver linings
Event: Q1FY12 earnings below estimates
Union Bank reported net income of Rs4.6bn (-23% y/y, -22% q/q) below UBS-e of
Rs6.2bn. NII too came below expectations as loan growth was lower than
estimates. Key highlights: 1) gross advances grew +17% y/y, declined 5% q/q 2)
Slippages spiked to 2% (annualized) but higher recoveries led to stable NPLs q/q
3) Higher provisions due to one off costs due to change in guidelines; adjusting for
which credit costs were lower than expected at 0.4%.4) NIMs witnessed a 34bps
(q/q) decline to 3.1%. 5) Fee income grew 5% y/y, treasury gains of Rs 1.7 bn.
Impact: Reduce estimates by 4% for FY12/13E
We reduce our loan growth estimates for FY12/13 from 19% to 17% on account of
slowing credit growth. We build in a NIM decline of 25bps y/y in FY12 lower than
management guidance of ~15 bps decline. Higher treasury income (in Q1) offsets
lower growth in core fee income that we now build in.
Action: Wait for a better entry point
Nearly 130 bn of agri accounts (9% of overall loans) are yet to transition to system
based NPL recognition which could lead to another quarter of high NPL addition.
UNBK is trading at a discount to PNB/BOB despite attractive RoEs; in our view
improvement in asset quality/lower slippages would be pertinent to bridge the gap
Valuation: Neutral, PT Rs 350
We value the stock using residual income method at Rs 350, which implies 1.2x
FY13E book and 6x FY13E earnings.
Union Bank
Union Bank of India is a public bank with a strong presence in western India
and parts of north India, in particular Uttar Pradesh. The bank has 2,821
branches and 2,127 ATMs, covering 1,500 centres and a customer base of 20m.
The company has opened representative offices in Shanghai, Dubai and Hong
Kong. The government of India holds a 55.4% stake in the bank.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
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