Stock market Result Update on United Bank of India for 1QFY2012

Stock market Result Update on United Bank of India for 1QFY2012 with a Buy recommendation and a Target Price of `109 (12 months).

For 1QFY2012, United Bank of India (UBI) posted healthy net profit growth of 22.8% yoy (down 7.5% qoq) to `132cr, slightly above our estimates, mostly due to higher non-interest income than estimated by us. We recommend Buy on the stock.

CASA ratio sustains above 40%; NIM declines marginally by 11bp qoq: For 1QFY2012, the bank’s advances declined by 1.7% qoq to `52,607cr and deposits declined by 1.0% qoq to 77,104cr. Saving deposits growth was healthy at 3.9% qoq, but current deposits declined by 18.9% qoq, leading to a dip of 53bp qoq in CASA ratio (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 43bp qoq to 6.4%. However, the bank was able to increase its yield on advances by 45bp qoq, leading to a relatively lesser decline in reported NIM of 11bp qoq to 3.0% compared to the decline in other PSU banks. Income from recoveries gained traction during the quarter rising by 33.5% qoq, while the growth in CEB income was muted at 2.2% qoq. During 1QFY2012, the bank continued witnessing asset-quality concerns with slippages increasing by `58cr sequentially to `392cr. Consequently, annualised slippage ratio stood at 2.9% for 1QFY2012 (3.2% in 4QFY2011). For 1QFY2012, the bank’s operating expenses decreased by 12.9% qoq (up 11.4% yoy) to `322cr, driven by a 1.5% sequential decline in employee expenses to `215cr.

Outlook and valuation: UBI has a favourable deposit franchise, as reflected in its strong CASA ratio of 40.2% as of 1QFY2012. At the CMP, the stock is trading at P/ABV multiple of 0.7x FY2013E P/ABV, which is relatively cheaper than peers. We have assigned a target FY2013E P/ABV multiple of 0.9x, implying an upside of 24.8%; hence, we recommend a Buy rating on the stockwith a target price of `109.