Union Bank of India - Reassuring confidence - Karvy

This is the second consecutive quarter of improvement in asset quality. Slippages were contained within 1.4% as against 1.8% in Q2FY13 and 3.8% in Q1FY13. As a result GNPA improved by 30bps sequentially to 3.4%. Credit grew at a decent pace of 21% and NIMs are stable sequentially at 3%. They have provided heavily during the quarter, shoring up provision coverage by 480bps sequentially to 66.2%.

Healthy respite in asset quality: Slippages were contained within 1.4% as against 1.8% in Q2FY13 and 3.8% in Q1FY13. As a result GNPA improved by 30bps sequentially to 3.4%. GNPA has improved by 30 bps sequentially to 3.4%. Despite lower slippages, it made a higher NPL provision of Rs5.5bn shoring up provision coverage by 480bps to 66.2%. Restructured assets were sequentially flat at 5.6% of loan book.

Decent growth in balance sheet: Advances grew by 22%, whereas, deposits managed growth of 17%. CASA has bounced back by 75bps sequentially to 31.3%.

Stable NIMs sequentially: NIMs are stable sequentially at 3% as yield on asset as well as cost of funds were almost stable on a sequential basis. NIMs were however lower by 36bps as against last year.

Outlook & Valuation

At the CMP, the stock trades at 4.6x & 3.9x FY14E & FY15E earnings, and at 0.9x & 0.8x P/ABV FY14E & FY15E, respectively. Based on 10% discount to its historical mean valuation implying 1.0x P/ABV FY15E, we reiterate our "BUY" recommendation on Union Bank of India with target price of Rs. 315 per share.

Source : Equity Bulls

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