United Bank of India - 2QFY2013 Result Update - Angel Broking

UTDBK reported a net profit growth of 15.9% during 2QFY2013, despite moderate operating level performance, largely on account of yoy flattish provisioning expenses. The operating profit grew by 6.0% yoy, largely aided by a strong performance on the non-interest income front (higher treasury gains and robust recoveries), even as the NII de-grew by 2.8% yoy.

NIM decline sequentially; Asset quality pressure continues: During 2QFY2013, the bank registered a moderate advances growth of 13.1% yoy, largely aided by higher agri sector lending (growth of 41.7% yoy). The management has guided for FY2013 loan growth of ~17% yoy. On the liabilities front, overall deposits grew by 18.7% yoy. Current deposits registered an impressive growth of 32.1% yoy, while growth in savings deposits remained healthy at 16.5% yoy. CASA ratio improved by 35bp yoy to 40.2%. The bank also reduced its share of bulk deposits (incl. CDs) to 14.2% from 16.2% in 1QFY2013 and 19.3% in 2QFY2012. Reported NIMs for the bank declined sequentially by 45bp to 2.6%, largely on account of a 41bp sequential fall in yield on advances (primarily due to interest reversals on slipped accounts). Noninterest income grew by 49.3% to Rs.242cr, aided by higher treasury gains and robust recoveries. On the asset quality front, slippages came in sequentially higher at Rs.448cr (which included 2 chunky accounts in construction sector worth ~Rs.72cr) compared to Rs.298cr in 1QFY2013. Annualized slippage ratio stood at 2.9% compared to 1.9% in the last quarter. Gross and net NPA levels were higher sequentially by 9% and 7%, respectively. PCR dipped slightly by 17bp qoq to 69.2%. Additionally, the bank restructured advances worth Rs.257cr during the quarter compared to Rs.1,120cr in 1QFY2013, thereby taking its outstanding restructured book to Rs.4,214cr (6.9% of advances). As per the RBI's latest 75bp increase in provisioning requirement on standard restructured advances, the bank would have to make additional provision of Rs.24cr. Going forward, the management has guided for restructuring of ~Rs.400-500cr in 2HFY2013.

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 0.5x FY2013E ABV (one of the lowest in the industry). Most of 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 and, hence we recommend an Accumulate rating on the stock with a target price of Rs.74.

Source : Equity Bulls

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