Union Bank of India (Q4 FY13)

India Infoline News Service | Mumbai |

The strong growth was driven by corporate (14.9% qoq) and SME (10.5% yoy) segments.

CMP Rs243, Target price Rs273, Upside 12.2%

Union Bank of India (UBI) reported a net profit of Rs7.9bn, much ahead of our and the Street’s expectation. Notwithstanding subdued growth in the Net interest income (NII), sharp rise in net profit was driven by robust Non-interest income growth (36.9% qoq), de-growth in Opex (0.2% qoq) , a decline in provisions (23.5% qoq) and the lower tax rate (23.3%).

UBI’s net advances grew by 9.5% qoq/17% yoy, almost in-line with our expectation of 9.1% qoq/16.5% yoy. The strong growth was driven by corporate (14.9% qoq) and SME (10.5% yoy) segments. On the other hand, growth in Retail (5.8% qoq) and Agriculture (3% qoq) segment was relatively weak. Management has guided a credit growth of 15-16% for FY14. Deposits grew by robust 10.2% qoq/18.3% yoy, far above our expectation of 6.6% qoq/14.5% yoy. The momentum in deposit growth was driven by both TDs (18.9% yoy) and CASA (17.1% yoy) deposits. Within CASA deposits, Current deposit contributed significantly growing by 20% qoq/24.5% yoy. Resultantly, CASA ratio remained stable at 31%, both on quarterly as well as annual basis. Bank has been consistently shedding its high-cost Bulk Deposit, from 16.8% of total deposits in Q4 FY12 to 8.8% in Q4 FY13. However, on sequential basis it has gone up by 60bps.

NIM declined by 6bps sequentially to 2.89% in Q4 FY13 mainly due to fall in Yield on Funds (7bps qoq) being higher than the decline in Cost of Funds (4bps qoq) and decrease in Credit/Deposit ratio by 50bps qoq. The decline in the Yield on Funds was on account of a reduction in the lending rates on various loan products. Going forward, management expects NIM to sustain in the range of 2.9-3.0%.

Asset quality showed a remarkable improvement with sequential decline in GNPA ratio (2.98%) and NNPA ratio (1.61%) by 38bps and 9bps respectively. Notwithstanding the challenging environment, NPAs have declined consistently in past three consecutive quarters after peaking in Q1 FY13. Though the delinquencies were slightly higher at Rs8.75bn, they were netted off by recoveries/up-gradations of Rs4.4bn and write-offs of Rs5bn. PCR declined marginally from 66.2% in Q3 FY13 to 65.2% in Q4 FY13. During Q4 FY13, advances worth Rs14bn were added to the restructured book. Management foresees restructuring of Rs22bn in Q1 FY14 largely from power and steel sector. Provisions are likely to remain elevated in the wake of higher restructuring pipeline and bank’s intent to increase PCR.

Non-interest income recorded significant growth of 36.9% qoq driven by treasury income of Rs2.35bn and forex gains of Rs1bn. Recoveries from written-off accounts stood healthy at Rs1bn in Q4 FY13. De-growth in Opex and robust non-interest income growth resulted in sharp improvement in C/I ratio from 46.3% in Q3 FY13 to 41% in Q4 FY13.

Even in adverse environment UBI has demonstrated consistent improvement in asset quality in past three quarters. However we continue to maintain cautious outlook on asset quality given the challenging environment and factor the same in future earnings growth. Keeping in view the sustained recoveries, anticipating an improvement in operating environment from hereon (transforming into good earnings growth) and lower valuation of 0.9x FY15E P/adj.BV, we retain our BUY rating on the stock with reduced target price of Rs273.

Result table
(Rs mn) Q4 FY13 Q3 FY13 % qoq Q4 FY12 % yoy
Total Interest Income 66,251 63,199 4.8 57,434 15.4
Interest expended (46,456) (44,284) 4.9 (38,668) 20.1

Net Interest Income 19,795 18,915 4.7 18,766 5.5

Other income 8,755 6,395 36.9 7,554 15.9

Total Income 28,550 25,310 12.8 26,320 8.5

Operating expenses (11,703) (11,726) (0.2) (10,332) 13.3

Provisions (6,555) (8,573) (23.5) (5,172) 26.8

PBT 10,291 5,010 105.4 10,816 (4.9)

Tax (2,397) (1,986) 20.7 (3,085) (22.3)

Reported PAT 7,894 3,024 161.0 7,732 2.1













 
Key  Ratios Q4 FY13 Q3 FY13 chg qoq Q4 FY12 chg yoy
NIM (%) 2.9 3.0 (0.1) 3.3 (0.4)
Yield on Funds (%) 9.1 9.1 (0.1) 9.7 (0.7)

Cost of Funds (%) 6.4 6.4 (0.0) 6.5 (0.2)

CASA (%) 31.0 31.3 (0.3) 31.3 (0.3)

C/D (x) 0.79 0.79 (0.00) 0.80 (0.01)

Non-interest income (%) 30.7 25.3 5.4 28.7 2.0

Non-interest income/Interest exp (%) 18.8 14.4 4.4 19.5 (0.7)

Cost to Income (%) 41.0 46.3 (5.3) 39.3 1.7

Provisions/Income (%) 8.7 12.3 (3.6) 8.0 0.8

RoA (%) 1.1 0.4 0.6 1.3 (0.2)

CAR (%) 11.5 10.8 0.7 11.9 (0.4)
Gross NPA (%) 3.0 3.4 (0.4) 3.0 (0.0)

Net NPA (%) 1.6 1.7 (0.1) 1.7 (0.1)









Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Total operating income 92,413 100,949 116,548 138,223
yoy growth (%) 11.9 9.2 15.5 18.6

Operating profit (pre-provisions) 52,913 55,827 64,207 76,461

Net profit 18,247 21,579 23,699 28,804

yoy growth (%) (12.4) 18.3 9.8 21.5


BSE 148.25 1.60 (1.09%)
NSE 148.20 1.65 (1.13%)

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.