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United Bank of India (UBoI) with dominant presence in Eastern and North-Eastern region plans to implement a pan-India presence. With sturdy loan growth (16% YTD as at H1 FY10), the current capital raising plan (~Rs3-3.3bn) would augment further growth while improving capital adequacy. With significant moderation in margin over past few years, the bank started increasing its exposure towards retail segment, especially housing loans. The geographical concentration (41% of loan book and 80% of deposits in East and North-East region) attributed for lower loan-deposit ratio while enabling healthy CASA ratio. The recent capital restructuring has enhanced book value to Rs94 (as at H1 FY10), translating into a valuation of 0.6x-0.7x trailing P/BV at the IPO price band. The change in management, however, remains a key risk to the bank’s medium term growth.
Exposure skewed towards Eastern & North-Eastern India
UBoI has large exposure towards Eastern and North-Eastern India. Over 82% of branches are located in this region which cumulatively account for over 41% of loans and higher 80% of total deposits. Because of the geographical concentration, the loan-deposit ratio of the bank has remained low at ~64%. Even margin has remained modest due to limited presence in cash-rich region of Southern and Western India.
Capital restructuring exercise has enhanced book value
The GoI permitted UBoI to undertake restructuring exercise under which a sum of Rs12.6bn towards paid-up capital was reversed to the promoter (GoI) and alternatively infused as capital reserve. This exercise resulted in decrease in equity share capital while the networth remained unchanged. As a result, book value of the bank increased from Rs17 as at end FY09 to Rs94 as at H1 FY10.
Current capital raising to support growth
Being 100% GoI held, UBoI has traditionally been resorting to raising funds via Government support. During FY09, the bank raised over Rs2.5bn through issue of Perpetual Non-cumulative Preference Shares. It currently plans to raise ~Rs3-3.3bn via issue of 50m shares. While the current equity issuance would reduce GoI stake to ~84%, it still remains higher than 51% as regulated by RBI. With CAR at 12.9% (H1 FY10), the current capital raising would enable UBoI to boost balance sheet growth.
Financial highlights
Y/e 31 Mar (Rs m)
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FY07
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FY08
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FY09
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H1 FY10
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Total operating income
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14,976
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13,701
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16,524
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8,837
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yoy growth (%)
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2.8
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(8.5)
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20.6
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-
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Operating profit (pre-provisions)
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7,191
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4,669
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6,772
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3,791
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Net profit
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2,673
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1,451
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3,586
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2,311
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yoy growth (%)
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30.7
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(45.7)
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147.1
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-
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|
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|
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EPS (Rs)
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1.7
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0.9
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2.3
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8.7
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BVPS (Rs)
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12
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13
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17
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95
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P/E (x) (Lower price band)
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34.4
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63.4
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25.6
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6.9
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P/BV (x) (Lower price band)
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4.9
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4.7
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3.6
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0.6
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P/E (x) (Upper price band)
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37.8
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69.7
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28.2
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7.6
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P/BV (x) (Upper price band)
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5.4
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5.1
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4.0
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0.7
| Source: RHP, India Infoline Research
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