United Bank of India - 1QFY2013 Result Update - Angel Broking

During 1QFY2013, United Bank of India (UBI) registered a strong performance, with net profit growth of 31.3% yoy and operating profit growth of 30.9% yoy, which was above our estimates primarily due to higher other income and lower operating expenses than what we estimated.

NIMs flat sequentially; Asset quality pressures remain: During 1QFY2013, the bank's advances and deposits grew at a healthy pace of 19.4% and 16.3% respectively. The growth in advances was largely aided by higher priority sector lending, primarily to the agri and small industries segment. Current deposits grew at a strong 22.2% yoy, while growth in savings deposits remained healthy at 15.4% yoy. The reported CASA ratio improved by 22bp to 40.5% on a yoy basis. The bank further reduced its share of bulk deposits to total deposits to 16.2% from 21.5% in 1QFY2012. The reported NIM remained almost flat sequentially to 3.1%. The bank reported a strong performance even on the non-interest income (excluding treasury) front, with a growth of 30.2% yoy. On the asset quality front, the bank witnessed a marginal sequential increase of ~5bp each in the gross and net NPA ratio to 3.5% and 1.8% respectively. The bank's slippages came in at Rs.298cr compared to Rs.590cr in 4QFY2012 (excluding NPA on advance to Kingfisher ~Rs.276cr). The annualized slippage ratio stood at 1.9% compared to 4.4% in 4QFY2012 and 2.9% in 1QFY2012. The PCR for the bank stood at 69.3%. The bank restructured advances worth Rs.1,120cr during the quarter (largely contributed by restructuring of advances to Rajasthan discom, HCC, and Bharti Shipyard), taking its outstanding restructured book to Rs.4,093cr. The management expects no further restructuring on any other discom advance (total discom advances Rs.740cr). However, they expect further restructuring of ~Rs.600cr in the coming quarter.

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 an 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; hence, we recommend a Buy rating on the stock with a target price of Rs.79.

Source : Equity Bulls

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