UBI’s loan book grew at a robust pace of 7.5% qoq, versus our expectation of 5%. The yoy credit growth momentum was relatively stronger for UBI in comparison with its peers, posting 21.6% growth. It was largely driven by Agriculture segment reporting a sequential growth of 10.4%, with the objective to meet Priority Sector target. As on Dec’2012, Priority Sector portfolio stands at ~32% of the total credit. Management has guided a credit growth of 16-17% for FY13, with Retail and Agriculture being the primary areas of focus. Deposits too posted a healthy growth of 5.9% qoq, against our expectation of 4.5%, led by strong CASA (8.5% qoq) mobilization. With CASA growing at a faster pace than total deposits, CASA ratio improved by 75bps to 31.3% in Q3 FY13. Bank has been consistently shedding its high-cost Bulk Deposit, from 15.9% of total deposits in Q3 FY12 to 8.2% in Q3 FY13. Improvement in CASA ratio and decline in high-cost Bulk Deposits has strengthened bank’s deposit profile. C/D ratio improved by 120bps qoq to 79.4% in Q3 FY13. Management has guided deposits growth of 14-15% FY13.
NIM declined by 7bps sequentially to 2.95% in Q3 FY13 mainly due to decrease in YoF (3bps qoq) and increase in CoF (2bps qoq). UBI has cut its base rate by 25bps on 31st Jan’2013 to 10.25% and also reduced interest rate on selective products. However, there has been no cut in deposit rates so far. Resultantly margins are expected to remain under pressure in the near term. Management indicated NIM to be ~3% in FY13.
Asset quality showed a remarkable improvement with sequential decline in GNPA ratio (3.4%) and NNPA ratio (1.7%) by 30bps and 36bps respectively. Delinquency ratio dropped further from 1.8% in Q2 FY13 to 1.5% in Q3 FY13. Out of the total slippages of Rs6.8bn, Rs3bn is contributed by three large accounts. UBI has an infrastructure portfolio of Rs327bn, of which only Rs3bn (cumulative) has turned into NPA implying a slippage ratio of just 1%. Outstanding restructured advances stood at 5.6% of total advances. During Q3 FY13, advances worth Rs12bn were added to the restructured book. Of which, steel sector was the largest contributor adding Rs2.8bn. Management foresees restructuring of Rs17bn in Q4 FY13. During the quarter, bank made additional provision of 0.75% (~Rs750mn) on the existing restructured book (as mandated by RBI). Despite a decline in NPA ratios, credit cost rose from 0.8% to 1.2% qoq with the intention to improve NPL coverage. Resultantly, PCR improved sharply from 61.5% in Q2 FY13 to 66.2% in Q3 FY13. Provisions are expected to remain high in the coming quarters in order to meet bank’s PCR target of 70%.
Non-interest income recorded significant growth 17.2% qoq, driven by robust recovery (from Rs560mn in Q2 FY13 to Rs1.1bn in Q3 FY13) and treasury gains (from Rs1.4n in Q2 FY13 to Rs1.9bn in Q3 FY13). C/I ratio improved by 30bps to 46.3% in Q3 FY13.
Stable asset quality, healthy PCR, improving deposit profile, decent credit growth and strong recoveries should drive valuation re-rating. Factoring higher provisioning, we lower our Net NPA estimates for FY14 and FY15 resulting in higher adjusted book. We upgrade the stock to BUY, with increased target multiple of 1.1x FY15E P/Adj.BV and target price of Rs285.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||63,199||61,098||3.4||53,747||17.6|
|Net Interest Income||18,915||18,502||2.2||17,809||6.2|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Yield on Funds (%)||9.1||9.2||(0.0)||9.6||(0.5)|
|Cost of Funds (%)||6.4||6.4||0.0||6.4||(0.0)|
|Non-interest income (%)||25.3||22.8||2.5||25.0||0.3|
|Non-interest income/Interest exp (%)||14.4||12.8||1.6||16.5||(2.0)|
|Cost to Income (%)||46.3||46.9||(0.6)||45.9||0.4|
BSE 108.75 1.15 (1.07%)
NSE 108.60 1.25 (1.16%)
***Note: This is a NSE Chart