Prabhudas Lilladher is bullish on Union Bank of India and has recommended accumulate rating on the stock with a target of Rs 260 in its October 31, 2014 research report.
"Union Bank reported muted performance in Q2FY15 with net profit declining by 44% YoY affected by weak NII growth and higher provisions. NIMs contracted by 7bp QoQ due to interest reversals (Rs730 mn) on new slippages and ~14% QoQ decline in current account deposits. Core fee income surprised positively as it grew 21% YoY far ahead of balance sheet growth and pulled core revenue growth to 14% YoY. Asset quality disappointed as fresh slippages stood at Rs19.68bn (3.4% annualized) and was led by lumpy slippages in textile and cement sectors. However management maintained its guidance to bring down GNPL ratio to ~4% by end of FY15 vs 4.7% currently and improve NIM to 2.8-2.9%. We maintain ACCUMULATE with PT of Rs260 which corresponds to 0.8x Sep-16 ABV."
"UNBK reported 13% YoY growth in revenues led by 21% YoY growth in core fee income and 165% YoY growth in exchange profits. NII growth was muted at 6.6% YoY affected by – (1) interest reversal of Rs730mn due to elevated slippages (~3.4% annualized) during the quarter (2) ~14% QoQ decline in current account deposits. Operating expenses increased by 8.7% QoQ and further pushed PPOP growth down to 9% YoY. Asset quality disappointed as stressed asset formation remained high at ~Rs29 bn led by rise in both fresh slippages and restructuring. Slippages was lumpy in nature with two accounts (one each in textile and cement sectors) forming ~40% of total slippages. O/s restructured asset portfolio increased marginally to 5.3% of total loans (2.8% excluding SEB restructuring) though still stands better than peers. Management maintained its guidance to bring down GNPL ratio to ~4% and improve NIM to 2.8‐2.9% by FY15 end. Tier I capital at 7.3% (without profits) in Q2FY15 remains low but is not expected to be alarming as management reiterated of slowing loan growth to 10‐12% for FY15, helping maintain capital levels and pre‐empt the need for immediate capital infusion. We maintain ACCUMULATE with PT of Rs260/share which corresponds to 0.8x Sep-16 ABV," says Prabhudas Lilladher research report.
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