Result Update on United Bank of India for 4QFY2011

For 4QFY2011, United Bank of India (UBI) posted robust net profit growth of 209.9% yoy (down by 12.2% qoq) to `143cr on account of lower provisioning expenses and healthy traction in other income. Asset-quality concerns were visible during the quarter. Healthy sequential growth in business and other income were the key positives from the result. We recommend an Accumulate rating on the stock.

Healthy sequential business growth, but with higher slippages: For 4QFY2011, the bank’s advances grew by healthy 5.6% qoq (26.4% yoy) to `53,502cr, while deposits grew by 6.5% qoq (14.2% yoy) to `77,845cr. CASA deposits grew by 22.2% yoy and CASA ratio at the end of 4QFY2011 stood strong at 40.8%. Reported NIM decreased by moderate 7bp qoq to 3.13%. During 4QFY2011, the bank witnessed asset-quality concerns, with slippages considerably increasing by `135cr sequentially to `334cr. Consequently, annualised slippage ratio increased from 1.9% in 3QFY2011 to 3.2% in 4QFY2011. Provision coverage ratio stood at 72.1% in 4QFY2011 (71.2% in 3QFY2011).

Outlook and valuation: UBI has a favourable deposit franchise, as reflected in its strong CASA ratio of 40.8% as of 4QFY2011. At the CMP, the stock is trading at P/ABV multiple of 0.8x FY2013E ABV of `123cr. We have assigned a target FY2013E P/ABV multiple of 0.9x, implying an upside of 11.0%; hence,
we recommend an Accumulate rating on the stock with a target price of `111.