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nvestment Argument
Armed with a strong rural and semi urban presence (UBI 40%, All BK
59%) both these banks are well positioned as the second liners of
growth in the banking industry. Growth drivers steadily moving towards
the East, UBI and All BK with 68% and 41% of branches in eastern
states will stand to benefit from these opportunities. We believe that
their extensive branch network will continue to benefit in terms of
low cost deposits (40% UBI, 30% All BK). The 15%+ growth rates (CAGR
FY09-11) across Eastern states will aid the growth of assets expected
to growth at 20% UBI and 21% All BK over FY11-13E.
Profitability of UBI has lagged peers we believe that an improvement
in CD ratio should protect NIMs in FY12 and contribute to margin
expansion in FY13 (3.3%). Further, a higher fee structure coupled with
firm recoveries should benefit UBI with higher RoAs (0.6% in FY11 to
0.8% in FY13). All Bk has consistently delivered strong profitability
(NIMs 3.8%, RoA 1%).We believe an improvement in operational
parameters (100% CBS and movement to a system based npa recognition)
at add positively to long term profitability.
UBI is trading at 0.8x and 0.7x P/ABV and 3.9x and 2.9x P/E FY12E and
FY13E. We have valued the stock at 1.0x (historical average P/ABV of
1.1x) which translates to a target price per share of Rs.106, a 41%
upside to current market price. We expect the strong franchise and
improving profitability to bring valuations closer to the historical
valuations for PSU banks.
All BK is trading at 1.1x and 0.9x P/ABV and 5.2x and 4.1x P/E FY12E
and FY13E. We have valued the stock at 1.1x (historical average P/ABV
of 1.1x) which translates to a target price per share of Rs.223, a 22%
upside to current market price. The bank compares well to banking
peers on operational and profitability ratios.
Investment Risk
We have reached a stage in the interest rate cycle where the consensus
is that interest rates have almost peaked. We have factored in a
50-75 bps firming of rates but higher moves from this point can
potentially impact credit growth and NIMs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
nvestment Argument
Armed with a strong rural and semi urban presence (UBI 40%, All BK
59%) both these banks are well positioned as the second liners of
growth in the banking industry. Growth drivers steadily moving towards
the East, UBI and All BK with 68% and 41% of branches in eastern
states will stand to benefit from these opportunities. We believe that
their extensive branch network will continue to benefit in terms of
low cost deposits (40% UBI, 30% All BK). The 15%+ growth rates (CAGR
FY09-11) across Eastern states will aid the growth of assets expected
to growth at 20% UBI and 21% All BK over FY11-13E.
Profitability of UBI has lagged peers we believe that an improvement
in CD ratio should protect NIMs in FY12 and contribute to margin
expansion in FY13 (3.3%). Further, a higher fee structure coupled with
firm recoveries should benefit UBI with higher RoAs (0.6% in FY11 to
0.8% in FY13). All Bk has consistently delivered strong profitability
(NIMs 3.8%, RoA 1%).We believe an improvement in operational
parameters (100% CBS and movement to a system based npa recognition)
at add positively to long term profitability.
UBI is trading at 0.8x and 0.7x P/ABV and 3.9x and 2.9x P/E FY12E and
FY13E. We have valued the stock at 1.0x (historical average P/ABV of
1.1x) which translates to a target price per share of Rs.106, a 41%
upside to current market price. We expect the strong franchise and
improving profitability to bring valuations closer to the historical
valuations for PSU banks.
All BK is trading at 1.1x and 0.9x P/ABV and 5.2x and 4.1x P/E FY12E
and FY13E. We have valued the stock at 1.1x (historical average P/ABV
of 1.1x) which translates to a target price per share of Rs.223, a 22%
upside to current market price. The bank compares well to banking
peers on operational and profitability ratios.
Investment Risk
We have reached a stage in the interest rate cycle where the consensus
is that interest rates have almost peaked. We have factored in a
50-75 bps firming of rates but higher moves from this point can
potentially impact credit growth and NIMs.
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