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H i g h e r p r o v i s i o n s d e n t b o t t o m l i n e …
Union Bank of India (UBI) reported lower than estimated PAT of | 464
crore due to higher provisioning and taxes. The bank provided additional
| 214 crore to meet RBI’s new norms for NPA provisions (| 185 crore) and
restructured accounts (| 29 crore). NII was in line with our estimate at |
1590 crore, declining 7.4% QoQ on account of a 3% QoQ de-growth in
the business mix. NIM slipped 34 bps QoQ to 3.1% due to higher CoF.
The bank had indicated a declining incremental slippage trend in Q4FY11.
However, slippages were high at | 766 crore, with | 500 crore emanating
from migration to system based NPA recognition. Even though the
management expects to bring down GNPA from the current 2.57% to 2%
by FY12E we remain cautious and estimate a GNPA of 2.3% by FY13E.
ƒ Business growth to stay low at 18% YoY in FY12E…
Advances declined by 4.9% QoQ (up 16.7% YoY) to | 1,45,567 crore
while deposits contracted 1.6% QoQ (up 16.1% YoY) to | 1,99,178
crore. The bank that had pared down its FY12E credit growth from
26% YoY to 22% YoY has lowered its target further to 19% YoY. We
expect the business mix to grow at a CAGR of 19% over FY11-13E.
ƒ Margins subdued as costs rise…
NIM, which was maintained at 3.4% over the past two quarters,
slipped to 3.1% in Q1FY12. This was due to CoF rising 62 bps QoQ
to 6.16% (factoring in savings rate hike). The management expects
NIM of 3.2% by FY12E.
ƒ Slippages higher as bank shifts to system based NPA recognition…
The bank saw incremental slippages of | 766 crore of which | 500
crore were due to migration to system based NPA recognition. The
bank had guided for lower slippages this quarter citing a declining
trend in incremental slippages over Q3-Q4FY11. Consequently
GNPA and NNPA inched up from 2.37%and 1.19% in Q4FY11 to
2.57% and 1.32%, respectively, in Q1FY12. Even though the
management is targeting GNPA of 2% by FY12E we remain cautious
and estimate a GNPA of 2.3% and NNPA of 1.0% by FY13E.
V a l u a t i o n
As anticipated, asset quality concerns weighed heavily on the bank’s
performance this quarter. We expect slippages to remain high next
quarter. The bank has lowered its business growth guidance to 18% YoY
and is focusing on controlling its asset quality. We have valued the bank
at 1.35x FY13E ABV and maintained our target price of | 350
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
H i g h e r p r o v i s i o n s d e n t b o t t o m l i n e …
Union Bank of India (UBI) reported lower than estimated PAT of | 464
crore due to higher provisioning and taxes. The bank provided additional
| 214 crore to meet RBI’s new norms for NPA provisions (| 185 crore) and
restructured accounts (| 29 crore). NII was in line with our estimate at |
1590 crore, declining 7.4% QoQ on account of a 3% QoQ de-growth in
the business mix. NIM slipped 34 bps QoQ to 3.1% due to higher CoF.
The bank had indicated a declining incremental slippage trend in Q4FY11.
However, slippages were high at | 766 crore, with | 500 crore emanating
from migration to system based NPA recognition. Even though the
management expects to bring down GNPA from the current 2.57% to 2%
by FY12E we remain cautious and estimate a GNPA of 2.3% by FY13E.
ƒ Business growth to stay low at 18% YoY in FY12E…
Advances declined by 4.9% QoQ (up 16.7% YoY) to | 1,45,567 crore
while deposits contracted 1.6% QoQ (up 16.1% YoY) to | 1,99,178
crore. The bank that had pared down its FY12E credit growth from
26% YoY to 22% YoY has lowered its target further to 19% YoY. We
expect the business mix to grow at a CAGR of 19% over FY11-13E.
ƒ Margins subdued as costs rise…
NIM, which was maintained at 3.4% over the past two quarters,
slipped to 3.1% in Q1FY12. This was due to CoF rising 62 bps QoQ
to 6.16% (factoring in savings rate hike). The management expects
NIM of 3.2% by FY12E.
ƒ Slippages higher as bank shifts to system based NPA recognition…
The bank saw incremental slippages of | 766 crore of which | 500
crore were due to migration to system based NPA recognition. The
bank had guided for lower slippages this quarter citing a declining
trend in incremental slippages over Q3-Q4FY11. Consequently
GNPA and NNPA inched up from 2.37%and 1.19% in Q4FY11 to
2.57% and 1.32%, respectively, in Q1FY12. Even though the
management is targeting GNPA of 2% by FY12E we remain cautious
and estimate a GNPA of 2.3% and NNPA of 1.0% by FY13E.
V a l u a t i o n
As anticipated, asset quality concerns weighed heavily on the bank’s
performance this quarter. We expect slippages to remain high next
quarter. The bank has lowered its business growth guidance to 18% YoY
and is focusing on controlling its asset quality. We have valued the bank
at 1.35x FY13E ABV and maintained our target price of | 350
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