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For 2QFY2012, United Bank registered 13.7% yoy growth in its net profit to
`125cr, above our estimates due to higher non-interest income than
estimated by us. We recommend a Buy rating on the stock.
Chunky slippages witnessed during 2QFY2012; NIM improves sequentially: For
2QFY2012, the bank’s advances grew by 3.2% qoq to `54,304cr, while deposits
declined by 1.5% qoq to `78,244cr. Savings deposit growth grew by 2.4% qoq;
however, current deposits declined by 5.8% qoq, leading to a dip of 37bp in
CASA ratio to 39.9% (40.2% as of 1QFY2012). During the quarter, with rising
cost of deposits for the system as a whole, the bank’s cost of deposits increased
by 25bp qoq to 6.6%. However, the bank was able to increase its yield on
advances by 54bp qoq, leading to a sequential expansion of 14bp in reported
NIM. Non-interest income declined by 4.6% qoq (up 6.9% yoy) to `162cr, mainly
due to a sequential 29.0% decline in treasury income to `47cr. Income from
recoveries was also poor, declining by 19.1% qoq to `16cr. The bank switched
over accounts worth `5lakhs and below to system-based NPA recognition in
2QFY2012. Management indicated that the switchover did not have any material
impact on the asset quality and higher slippages witnessed during the quarter
were due to three large corporate accounts (~`314cr out of total `621cr
slippages), which became non-performing during 2QFY2012. Consequently,
gross NPA ratio and net NPA ratio deteriorated to 3.5% and 2.2% in 2QFY2012
from 2.9% and 1.7% in 1QFY2012, respectively.
Outlook and valuation: UBI has a favorable deposit franchise, as reflected in its
strong CASA ratio of 39.9% as of 2QFY2012. At the CMP, the stock is trading at
P/ABV multiple of 0.6x FY2013E P/ABV. We have assigned a target FY2013E
P/ABV multiple of 0.7x and, hence, we recommend a Buy rating on the stock with
a target price of `82.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, United Bank registered 13.7% yoy growth in its net profit to
`125cr, above our estimates due to higher non-interest income than
estimated by us. We recommend a Buy rating on the stock.
Chunky slippages witnessed during 2QFY2012; NIM improves sequentially: For
2QFY2012, the bank’s advances grew by 3.2% qoq to `54,304cr, while deposits
declined by 1.5% qoq to `78,244cr. Savings deposit growth grew by 2.4% qoq;
however, current deposits declined by 5.8% qoq, leading to a dip of 37bp in
CASA ratio to 39.9% (40.2% as of 1QFY2012). During the quarter, with rising
cost of deposits for the system as a whole, the bank’s cost of deposits increased
by 25bp qoq to 6.6%. However, the bank was able to increase its yield on
advances by 54bp qoq, leading to a sequential expansion of 14bp in reported
NIM. Non-interest income declined by 4.6% qoq (up 6.9% yoy) to `162cr, mainly
due to a sequential 29.0% decline in treasury income to `47cr. Income from
recoveries was also poor, declining by 19.1% qoq to `16cr. The bank switched
over accounts worth `5lakhs and below to system-based NPA recognition in
2QFY2012. Management indicated that the switchover did not have any material
impact on the asset quality and higher slippages witnessed during the quarter
were due to three large corporate accounts (~`314cr out of total `621cr
slippages), which became non-performing during 2QFY2012. Consequently,
gross NPA ratio and net NPA ratio deteriorated to 3.5% and 2.2% in 2QFY2012
from 2.9% and 1.7% in 1QFY2012, respectively.
Outlook and valuation: UBI has a favorable deposit franchise, as reflected in its
strong CASA ratio of 39.9% as of 2QFY2012. At the CMP, the stock is trading at
P/ABV multiple of 0.6x FY2013E P/ABV. We have assigned a target FY2013E
P/ABV multiple of 0.7x and, hence, we recommend a Buy rating on the stock with
a target price of `82.
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