UCO Bank - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, UCO Bank reported an 11.9% yoy increase (down 24.0% qoq) in its net profit to Rs.253cr, which was below our estimates, mostly due to lower non-interest income and higher provisioning expenses than estimated by us. We maintain our Neutral recommendation on the stock.

Asset quality deteriorates during 4QFY2012: For FY2012, the bank's advances grew by reasonably healthy 16.6% yoy (up 9.1% qoq); however, the bank's deposits growth was low at 6.0% yoy (up 7.6% qoq). CA deposit accretion picked up during 4QFY2012 with 24.2% qoq growth (up 4.4% yoy); however, savings accounts growth was moderate at 2.0% qoq (up 8.1% yoy). Reported CASA ratio on a qoq basis remained stable at 22.0%. Reported NIM of the bank declined by 18bp qoq, as higher cost of funding bulk deposits increased cost pressures, while interest reversals led to lower yield on advances. During 4QFY2012, fee income increased by 10.4% qoq, primarily due to a sharp rise in recoveries from writtenoff accounts. Slippages for the bank spiked up sharply during 4QFY2012 to Rs.841cr (slippage ratio of 3.4%). The bank's PCR improved qoq by 317bp to 54.4%, although it remains one of the lowest in the industry.

Outlook and valuation: Structurally, the bank has had a relatively high exposure to large corporates, low CASA of ~22% and low fee income. Going forward, we expect the bank's earnings to find support from its increasing exposure to the SME and retail segments (gold loans etc.), improving other income and moderating asset-quality pressures, aided by increasing recoveries. However, at the CMP, the stock is trading at 0.7x FY2013E ABV, which we believe factors in the improvement expected in earnings quality. Also, lower provisioning coverage ratio (higher provisioning burden as the bank moves to 70%) and low core tier-I capital (slower credit growth to accord with Basel-3 norms) are a further overhang. Hence, we maintain our Neutral recommendation on the stock.

Source : Equity Bulls

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