United Bank of India - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, United Bank of India (UBI) registered a moderate set of numbers. The company's net profit grew by 4.2% yoy (down 33.9% qoq) to Rs.149cr, which was lower than our estimates due to higher margin contraction and provisioning expenses than estimated by us. We recommend a Buy rating on the stock.

Slippages up on account of a chunky NPA account: For FY2012, the bank's advances and deposits grew mostly in-line with the industry at 17.8% and 14.5%, respectively. CA deposit accretion picked up during 4QFY2012, with 33.6% qoq growth (up 14.2% yoy), while savings accounts growth was reasonably healthy at 3.7% qoq (up 14.5% yoy). Reported CASA ratio on a qoq basis increased by 99bp to 40.8%. The bank's cost of deposits increased by 23bp sequentially due to higher cost of borrowings on its bulk deposits. Also, yield on advances was lower during 4QFY2012 (down 29bp qoq) on account of interest reversals (Rs.17cr on account of Kingfisher) and FITL on restructured assets, which led to reported NIM of the bank dipping by 38bp qoq to 3.0%. Fee income of the bank for 4QFY2012 grew by 52.4% qoq on account of stronger recoveries (doubled on a sequential basis to Rs.33cr) and fee income arising from processing charges, locker fees and incidental charges (booked for proceeding quarters also in some cases). The bank's slippages (Rs.590cr) came in higher by 63.1% qoq on account of classifying Kingfisher as an NPA in 4QFY2012 (exposure of Rs.314cr). The bank's restructured book increased by 37.7% qoq, taking the outstanding restructured book to Rs.3,106cr. The sharp jump in restructuring book was due to restructuring of Air India (exposure of Rs.475cr; NPV loss from 1QFY2013) and Rajasthan SEB (~Rs.500cr).

Outlook and valuation: We believe the bank has several levers for structurally improving its RoA, but execution risks in terms of improving yields while maintaining the asset quality continue to remain an investment concern on the stock. That said, the bank is trading at inexpensive valuations of 0.4x FY2013E ABV (one of the lowest in the industry). The bank's peers are trading at 0.6x-0.7x FY2014 ABV, in spite of having similar and in some cases much lower CASA ratios. We value the stock at 0.6x FY2014E ABV and, hence, recommend a Buy rating on the stock with a target price of Rs.78.

Source : Equity Bulls

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