Union Bank of India (UNIBAN)

Transcription

1 Result Update Rating matrix Rating : Hold Target : 22 Target Period : 12 months Potential Upside : 5 % Key Financials crore FY1 NII PPP PAT Valuation summary FY1 Net Profit (Rs crore) EPS (Rs) Growth P/E (x) Price / Book (x) ABVPS (Rs) Price / Adj Book (x) GNPA NNPA RoNA RoE Stock data Market Capitalisation GNPA () NNPA () 1111 crore 5136 crore 2957 crore NIM () 3.21% 52 week H/L 427/27 Equity capital Crore Face value 1 DII Holding 14.7 FII Holding 11.9 Price movement 7, 5, 3, 1, Nov-1 Analyst s name Feb-11 May-11 Union Bank (R.H.S) Kajal Gandhi kajal.gandhi@icicisecurities.com Mani Arora mani.a@icicisecurities.com Jaymin Trivedi jaymin.trivedi@icicisecurities.com Jul-11 Nifty (L.H.S) Oct WHAT S CHANGED October 28, 211 Union Bank of India (UNIBAN) PRICE TARGET... Changed from 278 to 22 EPS ()... Changed from 46. to 36.5 EPS ()... Changed from 51.8 to 46.5 RATING... Changed from Buy to Hold Asset quality hurts bottomline Union bank reported disappointing PAT growth of 16% YoY to crore (24% QoQ de-growth) on account of high provision of crore (our estimate: crore). Business grew moderately by 13% YoY to crore (1% QoQ de-growth) with NII growing 8.2% YoY to crore in line with estimates. Bank managed to improve NIM by 1 bps QoQ to 3.2% as CD ratio jumped 223 bps QoQ to 75.3%. Other income was flat YoY at 51 crore while operating expenses grew 4.6% YoY in line with estimate to 957 crore (5.4% QoQ). Bank felt the heat of poor asset quality as GNPA rose 37.2% QoQ in absolute terms to 5136 crore. Bank made high provision on back of these NPA but still its PCR was significantly low at 6.5%. We expect asset quality concern to remain high and hence revised GNPA ratio from 2.5% to 3.3% for. We have scaled down profit target from 2716 crore to 2439 crore for. Pain of poor asset quality felt Banks GNPA grew 37.1% QoQ to 5136 crore with GNPA ratio at 3.5% while its NNPA ratio stood at 2% with PCR of 6.5%. Incremental slippage for the quarter was 1821 crore out of which ~ 13 crore slippage was on account of complete migration to system based NPA recognition. Bank witnessed restructuring of 756 crore during the quarter across the sectors like sugar, chemical, textile etc. ~13.1% of restructured asset slipped in NPA. Bank expects recoveries in H2FY12 but we remain cautious on asset quality and hence revise our GNPA from 461 crore to 5932 crore by. We estimate GNPA ratio of 3.3% and NNPA ratio of 1.7% for. Margins to remain stable NIM has improved by 1 bps QoQ to 3.2% in. YoA improved 3bps QoQ to 9.13% while CoF inched up 1bp to 6.17%. Management has guided that it will maintain NIM of 3.2% for. Valuation Banks asset quality could affect bottomline growth; we expect 8% cagr PAT growth over -13E to 2439 crore. Revision in GNPA estimate has caused ABV/share to fall from 254 to 22 for. We expect RoA of.8% and RoE of 17.9% for. We are cutting target multiple from 1.1x to 1x ABV and hence value the bank at 22 with hold rating. Exhibit 1: Financial Performance Crore E Q2 YoY Gr. QoQ Gr. NII Other Income PPP PAT Source: Company Quarterly Presentation, ICICIdirect.com Research 21 ICICI Securities Ltd Retail Equity Research

2 Exhibit 2: Business growth for lowered to 17% Advances grew 16.5% YoY to crore (1.2% QoQ growth) while deposits growth was moderate at 1% YoY to crore (1.8% QoQ de-growth) We expect the business mix to grow at a CAGR of 18% over -13E ( Crore) Q1 Q2 Q3 Advances Deposits Advances Growth YoY Deposits Growth YoY Exhibit 3: CASA ratio flat QoQ at 32% ( Crore) Q1FY1 Q2FY1 FY1 Q1 Q2 Q3 CASA Term CASA ratio (RHS) Exhibit 4: NIM improves 1 bps sequentially to 3.2% 12 4 NIM improved 1 bps QoQ to 3.2% as CD ratio jumped 223 bps QoQ to 75.3% Management expects to maintain NIM in range of % for Q2FY1 Q4FY1 Q1 Q2 Q3 * * Yield on Advances* Cost of Deposits* NIM (RHS) *Calculated ICICI Securities Ltd Retail Equity Research Page 2

3 Exhibit 5: C/I ratio stays high at 44% Q4FY1 Q1 Q2 Q3 Cost to income ratio Exhibit 6: Higher slippages due to migration to system based NPA recognition 4. GNPA rose 37% QoQ to 5136 crore as system based NPA recognition contributed 13 crore to incremental slippages of 18 crore. Banks SEB exposure stands at 4% (~ 6 crore), wile MSME exposure is 16.4% ( crore). Bank has highest exposure towards large corporate of ~4-45% We expect GNPA at 3.2% and NNPA at 1.5% for. Q2FY1 Q4FY1 Q1 Q2 Q3 GNPA ratio NNPA ratio ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 7: Profit and loss account Crore FY1 Interest Earned Interest Expended Net Interest Income Growth Non Interest Income Net total Income Total Operating Expenses Employee cost Other operating Exp Operating Income Provisions PBT Taxes Net Profit Growth Source: Company annual report, ICICIdirect.com Research Exhibit 8: Balance sheet Crore FY1 Sources of Funds Capital Reserves and Surplus Networth Deposits Borrowings Other Liabilities & Provisions Total Uses of funds Fixed Assets Investments Advances Other Assets Cash with RBI & call money Total Source: Company annual report, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 4

5 ICICIdirect.com coverage universe (BFSI) Public Sector Banks Bank of India NP ( Cr) EPS ( ) PE (x) P/ABV (x) RoNA RoE Idirect Code BANIND CMP Target Mcap ( Cr) Upside Bank of Baroda Idirect Code BANBAR CMP Target Mcap ( Cr) 2662 Upside Dena Bank Idirect Code DENBAN CMP Target Mcap ( Cr) 24 Upside Indian Overseas Bank Idirect Code INDOVE CMP Target Mcap ( Cr) 493 Upside OBC Idirect Code ORIBAN CMP Target Mcap ( Cr) 8344 Upside Punjab National Bank Idirect Code PUNBAN CMP Target Mcap ( Cr) 397 Upside SBI Idirect Code STABAN CMP Target Mcap ( Bn) Upside Syndicate Bank Idirect Code SYNBN CMP Target Mcap ( Cr) 5761 Upside Union Bank of India Idirect Code UNIBAN CMP Target Mcap ( Cr) 1111 Upside UR* Under Review Private Sector Banks Axis Bank Idirect Code UTIBAN CMP Target Mcap ( Cr) Upside City Union Bank Idirect Code CITUNI CMP Target Mcap ( Cr) 172 Upside Dhanlaxmi Bank Idirect Code DHABAN CMP Target Mcap ( Cr) 527 Upside DCB Idirect Code DCB CMP Target Mcap ( Cr) 821 Upside Federal Bank Idirect Code FEDBAN CMP Target Mcap ( Cr) 6667 Upside ICICI Securities Ltd Retail Equity Research Page 5

6 Continued... HDFC Bank NP ( Cr) EPS ( ) PE (x) P/ABV (x) RoNA RoE Idirect Code HDFBAN CMP Target Mcap ( Cr) Upside Kotak Bank Idirect Code KOTMAH CMP Target Mcap ( Cr) 3477 Upside South Indian Bank Idirect Code SOUIN CMP Target Mcap ( Cr) 2622 Upside Yes Bank Idirect Code YESBAN CMP Target Mcap ( Cr) 9963 Upside Exhibit 9: Recommendation History Nov-1 Dec-1 Feb-11 Mar-11 May-11 Jun-11 Jul-11 Sep-11 Oct-11 Price Target Price Source: Bloomberg, ICICIdirect.com Research Exhibit 1: Recent Releases Date Event CMP Target Price Rating 1-Nov-1 Q2 Result Update Add 27-Jan-11 Q3 Result Update Buy 13-May-11 Q4 Result Update Buy 26-Jul-11 Result Update Buy 23-Sep-11 Banking Industry Vol VI Buy 5-Oct-11 Result Preview Buy Source: Company, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6

7 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps / midcaps, respectively; Buy: Between 1% and 15%/2% for large caps / midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ANALYST CERTIFICATION We /I, Kajal Gandhi CA Mani Arora MBA Jaymin Trivedi MBA-CM research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. Disclosures: ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and employees ( ICICI Securities and affiliates ) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Kajal Gandhi CA Mani Arora MBA Jaymin Trivedi MBA-CM research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Kajal Gandhi CA Mani Arora MBA Jaymin Trivedi MBA-CM research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd Retail Equity Research Page 7