After surprising the markets positively in Q4 FY12 with its robust PAT, UBI shocked the street in Q1 FY13 with a significant deterioration in asset quality. Loan book de-grew by 2.2% sequentially, versus our expectation of 1.5% growth. De-growth was the result of the averseness of the management towards corporate lending (evident in the past two quarters). Barring Corporate book, all other segments (Retail, MSME and Agriculture) grew in the range of 2-4% during the quarter. Deposits growth was muted at 0.3% qoq against our expectation of 2%. CASA ratio declined by 33bps qoq to 30.95% owing to fall in Current deposits, mobilization of which has been a challenging task in current tough macro situation. C/D ratio declined by 2ppt to 78% in Q1 FY13.
NIM fell sharply by 25bps sequentially to 3.01%, as compared to our expectation of 15bps fall. The reason was steep fall of 37bps in YoA on account of substantial slippages and significant restructuring activity. We expect NIM to remain above 3% in FY13, given the managementâ€™s focus on high-yielding Retail and MSME segment.
Asset quality deteriorated significantly with 20% spike in Gross NPAs, resulting in 75bps increase in GNPA ratio (from 3.01% in Q4 FY12 to 3.76% in Q1 FY13). Delinquency ratio more than doubled in Q1 FY13, standing at 3.7% (annualized) compared to 1.5% in Q4 FY12. During the quarter, fresh additions stood at Rs16.3bn. Outstanding restructured advances were Rs135bn as on Junâ€™2012 (7.8% of total advances). During the quarter advances worth Rs16.4bn were restructured, which included one state electricity boardâ€™s account of Rs12bn. Incremental NPAs and higher restructuring led to an increase in credit cost, from 0.5% in the previous quarter to 1% in the current quarter.
Core fee-based income rose by 40.5% yoy. However, sequentially it declined by ~27% on account of seasonality and sluggish credit growth in Q1. Recovery in w/off accounts was almost flat yoy. Aggregate non-interest income was up by 1.4% on yoy basis. C/I ratio shot up by 6ppt to ~45% in Q1 FY13 given the 12% sequential decline in total income.
With CAR and Tier 1 capital at 11.6% and 8.4% respectively, the bank seems fairly capitalized to support its planned balance sheet growth in the medium term.
Keeping in view the fragile asset quality, weak operating performance and declining RoA, UBIâ€™s valuation would remain under pressure capping any absolute gains in the stock price. Maintain Market Performer with a 9-month target price of Rs174.
|(Rs m)||Q1 FY13||Q4 FY12||% qoq||Q1 FY12||% yoy|
|Total Interest Inc||60,699||57,434||5.7||49,157||23.5|
|Net Interest Inc||18,217||18,766||(2.9)||15,902||14.6|
|Key Ratios||Q1 FY13||Q4 FY12||chg qoq||Q1 FY12||chg yoy|
|Yield on Funds (%)||9.3||9.7||(0.4)||9.1||0.2|
|Cost of Funds (%)||6.5||6.5||-||6.2||0.4|
|Non-interest income (%)||21.2||28.7||(7.5)||23.3||(2.1)|
|Non-int.income/Interest exp (%)||11.6||19.5||(8.0)||14.6||(3.0)|
|Cost to Income (%)||45.2||39.3||6.0||43.8||1.4|
|Gross NPA (%)||3.8||3.0||0.8||2.6||1.2|
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