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.

Result Update on Union Bank of India for 4QFY2011

For 4QFY2011, Union Bank of India (UBI) posted a decent set of results with sequentially stable NIMs and halving of slippages but employee benefit related liabilities were on the higher side. Effective tax rate for the quarter (at 16.6%) compared to 32.7% in 3QFY2011, partly aided the profitability. Post the recent run-up in the stock on the back of results, we recommend an Accumulate.

Healthy business growth with stable NIMs and lower slippages: For 4QFY2011, the bank’s business momentum was healthy with advances and deposits growing by 12.9% qoq and 8.5% qoq, respectively. The growth was brought about while maintaining margins intact compared to peers who have witnessed relatively higher decline in NIMs sequentially. CASA deposits growth moderated to 19.2% yoy from 33.4% yoy in 3QFY2011 due to sequential decline of 3.7% in saving account deposits. However bank was able to sustain CASA ratio on a yoy basis at 31.8% on the back of good growth in current account deposits.  Reported NIM was sequentially stable at 3.44%. On the asset-quality front, the bank surprised positively by reporting substantially lower slippages sequentially compared to peers witnessing surge in slippages. The annualised slippage ratio for the quarter declined to 1.4% from peak of 3.8% in 2QFY2011. However the reported provision coverage ratio dipped by 262bp qoq to 67.6% due to lower credit costs.

Outlook and valuation: In our view, UBI is structurally among the more profitable and competitive PSU banks. We have a positive outlook on the bank due to its robust traction in CASA deposits and relatively fast-expanding branch network over the last few years. The stock is trading at 1.2x FY2013E P/ABV which is below its five year median of 1.3x. Hence, we recommend an Accumulate on the stock, with a Target Price of `356, based on median level of 1.3x

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.