1914608059_LS_UBI_Q4FY10

8/8/2019 1914608059_LS_UBI_Q4FY10

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CMP Rs297, Target Rs319

Union Bank – MP

Result Update (Q4 FY10) May 07, 2010

Sector: Banking

Sensex: 16,988

CMP (Rs): 297

Target price (Rs): 319

Upside (%): 7.3

52 Week h/l (Rs): 318 / 157

Market cap (Rscr) : 14,977

6m Avg vol (‘000Nos): 745

No of o/s shares (mn): 505

FV (Rs): 10

Bloomberg code: UNBK IB

Reuters code: UNBK.BO

BSE code: 532477

NSE code: UNIONBANK

Prices as on 06 May, 2010.

Shareholding pattern

March '10 (%)

Promoters 55.4

Institutions 30.1

Non promoter corp hold 4.6

Public & others 9.9

Performance rel. to sensex

(%) 1m 3m 1yr

Union Bank 3.1 15.7 34.8

BoB 11.6 20.4 88.2

BoI 7.3 1.2 19.2

PNB 5.9 15.2 71.2

Share price trend

5070

90

110

130

150

170

190

210

May-09 Aug-09 Dec-09 Apr-10

Union Bank Sensex

Net interest income was up 51%yoy, net profit, too reported ahealthy 28%yoy growth.

Non-interest income reported a modest 6%qoq growth; fee

income continues to be a key driver

Loan book was up 23%yoy; deposit book, too reported abovesystem growth rate. LDR remains comfortable at 71% levels

Concerns over asset quality linger, provision coverage ratioremains adequate.

Capital remains comfortable, valuations appear rightly priced,maintain MP.

Result table(Rs m) Q4 FY10 Q3 FY10 % qoq Q4 FY09 % yoy

Total Interest Inc 35,617 32,936 8.1 32,897 8.3

Interest expended (21,656) (22,289) (2.8) (23,633) (8.4)Net Interest Inc 13,961 10,647 31.1 9,264 50.7

Other income 4,925 4,648 6.0 5,590 (11.9)

Total Income 18,887 15,294 23.5 14,854 27.1

Operating exp. (7,411) (6,152) 20.5 (5,740) 29.1

Provisions (3,400) (1,611) 111.1 (2,834) 20.0

PBT 8,075 7,531 7.2 6,281 28.6

Tax (2,140) (2,190) (2.3) (1,630) 31.3

Reported PAT 5,935 5,341 11.1 4,651 27.6

EPS 47.0 42.3 11.1 36.8 27.6

Key Ratios Q4 FY10 Q3 FY10 chg qoq Q4 FY09 chg yoy

NIM (%) 3.4 2.8 0.6 2.7 0.7Yield on adv (%) 9.9 11.5 (1.6) 11.1 (1.1)

Yield on invest (%) 8.1 6.8 1.2 7.3 0.7

Yield on Funds (%) 8.0 8.0 0.1 8.8 (0.8)

Cost of Deposits (%) 5.3 5.8 (0.4) 6.9 (1.6)

Cost of Funds (%) 5.5 5.4 0.1 6.4 (0.8)

CASA (%) 31.7 32.3 (0.6) 30.1 1.7

C/D (x) 0.7 0.7 0.0 0.7 0.0

Non-int inc (%) 26.1 30.4 (4.3) 37.6 (11.6)

Non-int inc/Int exp (%) 22.7 20.9 1.9 23.7 (0.9)

Cost to Income (%) 39.2 40.2 (1.0) 38.6 0.6

Prov./Income (%) 8.4 4.3 4.1 7.4 1.0

BV (Rs) 173.4 167.3 6.0 137.9 35.5

RoE (%) 23.7 25.3 (1.6) 24.8 (1.1)

RoA (%) 1.3 1.3 0.1 1.3 0.1

CAR (%) 12.5 13.5 (1.0) 13.3 (0.8)

Gross NPA (%) 2.2 2.0 0.2 2.0 0.2

Net NPA (%) 0.8 0.6 0.2 0.3 0.5Source: Company, India Infoline Research

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Union Bank – (Q4 FY10)

Resul t Update 2

Net Interest Income w as up 51% yoy, net profit, too reported a healthy 28%yoy grow th.Union Bank of India (UBI) reported a healthy 51%yoy growth in its net interest income. This growth in

NII was led by substantial decline in interest cost and sturdy loan growth. Interest expense for thebank was down 9%yoy, largely due to increasing proportion of CASA deposits. Also the benign interestrate regime and re-pricing exercise have enabled the bank to report substantial decline in cost-of-

deposits. During Q4 FY10, cost-of-deposits for the bank declined by 45bps sequentially to 5.3%. Loanbook for the bank was up 23.4%yoy (up 14%qoq). Non-interest income declined 12%yoy, largely dueto lower trading gains. While operating expenses grew 21%qoq (29%yoy) cost-to-income ratioimproved sequentially to 39.2%. With provisions rising 20%yoy, provision/income ratio stood at 8.4%.As a result, net profit for the bank was up 28%yoy (11% sequentially)

Non-interest income reported a modest 6%qoq growth; fee income continues to be a keydriver

During Q4 FY10, the bank reported a modest 6%qoq growth. On a y-o-y basis, non-interest incomehowever declined 12%yoy. As a result, the share of non-interest income to total income stood at 26%.On an annualized basis, non-interest however reported a healthy 33%yoy growth. This was led bygrowth in income from core fee based income (up 33%yoy), treasury income (up 41%yoy) and

recovery in written-off accounts (up 24%yoy). Core fee income included income from loan syndication,transaction banking activities etc. We expect the bank to witness 21%CAGR in non-interest incomeover FY10-12E

Loan book was up 23%yoy; deposit book, too reported above system growth rate. LDRremains comfortable at 71% levels.UBI reported a healthy 23%yoy growth in its loan book. Even on a sequential basis, loan book was up

14%. The bank’s share in system credit has now improved 3.34% as at end FY10 as against 3.12% asat end to FY08. On the other hand, its share in system deposit has improved to 3.5% as at end FY10as against 3.1% as at end FY08.The bank witnessed growth across all segments. The MSME advancebook grew 41%yoy (up 10%qoq), the agriculture book was up 33.7%yoy (up 3%qoq) while its retailbook was up 33.8%yoy (up 14%qoq). Amongst retail loans, the bank has been growing its home loanportfolio at a steady rate (up 23%yoy).

Deposit book for the bank was up 22.6%yoy (12.5%qoq). This growth in deposit book could beattributable to substantial rise in CASA deposit. Impetus towards financial inclusion and increasingbranch network has enabled the bank to garner low-cost deposits. CASA deposits for the bank were up

29%yoy (10%qoq). Of this, savings deposits grew at a healthy pace of 32%yoy. As a result, the shareof CASA in total deposits now stood at 31.7% as against 30.1% as at end FY09. The loan-to-depositratio for the bank has remained at a comfortable zone of 71% for past two quarters.

Concerns over asset quality linger, provision coverage ratio remains adequate.UBI has been witnessing increasing concerns on its asset quality for the past few quarters. Gross NPLfor the bank were up 39%yoy (up 28%qoq), much ahead of its credit growth. GNPL for the bank stoodat Rs26.7bn or 2.2% of total loans. Net NPL, too were up 57%qoq to Rs9.6bn or 0.8% of total loans.

Provision coverage ratio has improved to 74%. The bank restructured Rs20bn of loans or 1.6% of totalloans during the year, taking the total loans restructured to Rs50bn or 4.1% of total loans. While 8%of loans restructured earlier turned NPA, we expect further accretion in coming period.

Capital remains comfortable, valuations appear rightly priced.

Capital adequacy for the bank remains comfortable with CAR at 12.5% and Tier I CAR at 7.9%. Duringthe year, the bank raised capital of Rs200bn via issue of perpetual bond. However with credit growthtargeted at 25% for FY11, we expect the bank to approach GoI for further capital. In the recent mediainteraction, the bank management has indicated for raising capital of upto Rs20bn from GoI. Despitebest in class returns ratio (RoE of 23%+ and RoA at 1.1%) as compared to its peers Bank of Baroda(RoE 20%, RoA 1.3%), Corporation Bank (RoE 22.2%, RoA 1.2%), Canara Bank and PNB, the bankattracts lower valuation due to concerns pertaining to its asset quality. We upgrade our FY11 and FY12

net profit estimates by 17% and 20% respectively to factor in higher loan and deposit growth. Weexpect the bank to witness 23% CAGR in balance sheet over FY10-12E, translating into 18%CAGR innet profit over FY10-12E. The stock has had a decent performance for past one and three months.With limited upside in near term, we assign 1.2x multiple to FY12 book to arrive at a price target of

319. Maintain MP.

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Union Bank – (Q4 FY10)

Resul t Update 3

Results comparison (Q4 FY10)Key Ratios UBI BoB Corp Bank

NIM (%) 3.4 2.5 3.0

CASA (%) 31.7 28.6 35.6

C/D (%) 0.7 68.2 72.6

Non-int inc (%) 26.1 42.6 32.7

Cost to Inc (%) 39.2 40.3 37.2

BV (Rs) 173.4 402.6 378.4

RoE (%) 23.7 20.3 22.2

RoA (%) 1.3 1.3 1.2

CAR (%) 12.5 15.4 14.4

Gross NPA (%) 2.2 1 1.4

Net NPA (%) 0.8 0.3 0.3

Source: Companies, India Infoline Research

Financial summary Y/e 31 Mar (Rs m) FY09 FY10 FY11E FY12E

Total operating income 52,961 61,672 78,800 92,074

yoy growth (%) 26.9 16.4 27.8 16.8

Operating profit (pre-provisions) 30,820 36,593 49,207 56,563

Net profit 17,265 20,749 25,455 29,071

yoy growth (%) 24.5 20.2 22.7 14.2

EPS (Rs) 34.2 41.1 50.4 57.6

BVPS (Rs) 173.0 173.4 216.2 265.5

P/E (x) 8.7 7.2 5.9 5.2

P/BV (x) 1.7 1.7 1.4 1.1

ROE (%) 21.5 23.7 25.9 23.9ROA (%) 1.2 1.2 1.2 1.1

Dividend yield (%) 1.7 1.9 2.2 2.4

CAR (%) 13.3 12.5 10.8 10.3Source: Company, India Infoline Research

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Recommendation parameters for fundamental reports:

Buy – Absolute return of over +10%

Market Performer – Absolute return between -10% to +10%

Sell – Absolute return below -10%

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