Union Bank of India (Q4 FY12)

India Infoline News Service | Mumbai |

CASA ratio declined by 126bps from 32.5% in Q3 FY12 to 31.3% in Q4 FY12. Management has guided to grow the advances and deposits by 19% and 17%, respectively in FY13.

  • UBI’s credit growth accelerated by 13.9% sequentially, slightly ahead of our expectation of 12.5%, after reporting a subdued growth of 3.5% during 9M FY12. The yoy credit growth momentum stood at 17.8%, compared to 26.5% in FY11. Deposits grew by 8.5% qoq, versus our expectation of 12%. The growth in deposits was driven by Term Deposits (10.6% qoq). With advances growing ahead of deposits, C/D ratio shot up 4ppt qoq to 80%. CASA ratio declined by 126bps from 32.5% in Q3 FY12 to 31.3% in Q4 FY12. Management has guided to grow the advances and deposits by 19% and 17%, respectively in FY13. A sizeable portion of loan book growth will be attributable to Retail lending. CASA and Retail TDs will drive the growth in Deposits.
  • NIM declined by 5bps (3.26% in Q4 FY12) owing to increase in CoF (11bps) being marginally higher than YoF (9bps). Management has achieved its NIM target of 3.2% for FY12, as guided. Bank reduced its base rate to 10.5%. NIM is expected to compress marginally, with the impact of base rate cut kicking in. Although, focus on high-yielding Retail lending and low cost CASA deposit should result in NIM improvement, the impact of the same cannot be realized immediately. Management expects NIM to be above 3% in FY13.
  • Asset quality improved further in Q4 FY12 with GNPA ratio declining by 32bps, from 3.3% in Q3 FY12 to 3% in Q4 FY12. Delinquency ratio remained flat sequentially at 1.5%. Despite strong profitability bank did not make adequate provisions, as reflected in sharp fall in the credit cost (from 1.1% in Q3 FY12 to 0.5% in Q4 FY12). Also the Provision Coverage Ratio declined from 63.1% to 62.2% qoq. As on Mar’2012, outstanding restructured advances stood at ~Rs79bn (4.7% of advances). During the quarter, bank restructured assets worth Rs32bn, out of which ~Rs18bn is attributable to one SEB account and Rs1.5bn pertains to engineering sector. One SEB account of ~Rs11bn will be restructured in Q1 FY13. This account will be NPV protected, thereby reducing the provisioning requirement, which in turn will lessen the impact on the profitability of the bank. The year FY12 witnessed significant restructuring activity. Provisions on restructured assets increased from Rs20mn in FY11 to Rs5,070mn in FY12, thereby affecting the bank’s net profit.
  • Non-Interest income rose sharply by 27.5% qoq, driven by strong Core fee based income (24.8% qoq) and robust recovery (80% qoq). During FY12, bank recovered Rs3.5bn compared to Rs2.1bn in FY11. C/I ratio improved by 6.6ppt sequentially to 39.3% on account of steep fall in staff cost (15.25 qoq). Healthy growth in non-interest income, reduction in operating costs and lower provisions boosted RoA to 1.3%, highest in past six quarters.
  • With CAR and Tier 1 capital at 11.9% and 8.4% respectively, the bank seems fairly capitalized to support its planned balance sheet growth in the medium term. During the quarter, bank raised Rs6.5bn from LIC on a preferential basis.
  • With improvement in asset quality, better operating efficiency and stable NIM, we upgrade our stock to Market Performer. However, the robust profitability in Q4 was on account of strong non-interest income (due to seasonality) and lower provisioning levels; and thereby is unlikely to sustain in ensuing quarters. Currently, the stock is trading at 1.2x FY13E P/Adj.BV, so the probability of a sharp up move from current levels is low. Our target price is Rs204.
Result table
(Rs m)
Q4 FY12
Q3 FY12
% qoq
Q4 FY11
% yoy
Total Interest Inc
57,434
53,747
6.9
46,153
24.4
Interest expended
(38,668)
(35,939)
7.6
(28,987)
33.4
Net Interest Inc
18,766
17,809
5.4
17,165
9.3
Other income
7,554
5,921
27.6
6,006
25.8
Total Income
26,320
23,730
10.9
23,171
13.6
Operating exp.
(10,332)
(10,889)
(5.1)
(14,475)
(28.6)
 Provisions
(5,172)
(9,727)
(46.8)
(1,532)
237.5
PBT
10,816
3,114
247.3
7,163
51.0
Tax
(3,085)
(1,144)
169.6
(1,187)
159.8
Reported PAT
7,732
1,970
292.5
5,976
29.4
EPS
46.8
12.4
276.9
37.6
24.3
Key  Ratios
Q4 FY12
Q3 FY12
chg qoq
Q4 FY11
chg yoy
NIM (%)
3.3
3.3
(0.1)
3.4
(0.2)
Yield on Funds (%)
9.7
9.6
0.1
8.8
0.9
Cost of Funds (%)
6.5
6.4
0.1
5.5
1.0
CASA (%)
31.3
32.5
(1.3)
31.8
(0.5)
C/D (x)
0.80
0.76
0.04
0.75
0.05
Non-interest income (%)
28.7
25.0
3.7
25.9
2.8
Non-int.income/Interest exp (%)
19.5
16.5
3.1
20.7
(1.2)
Cost to Income (%)
39.3
45.9
(6.6)
62.5
(23.2)
Provisions/Income (%)
8.0
16.3
(8.3)
2.9
5.0
BV (Rs)
260.4
233.4
27.1
212.6
47.8
RoE (%)
21.6
11.1
10.5
18.7
2.9
RoA (%)
1.3
0.4
1.0
1.1
0.3
CAR (%)
11.9
11.7
0.1
13.0
(1.1)
Gross NPA (%)
3.0
3.3
(0.3)
2.4
0.6
Net NPA (%)
1.7
1.9
(0.2)
1.2
0.5
Financial summary
BSE 148.25 1.60 (1.09%)
NSE 148.20 1.65 (1.13%)

***Note: This is a NSE Chart

 

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Y/e 31 Mar (Rs m)
FY11
FY12
FY13E
FY14E
Total operating income
82,550
92,413
103,719
124,175
yoy growth (%)
33.9
11.9
12.2
19.7
Operating profit (pre-prov)
43,050