United Bank of India - 3QFY2013 Result Update - Angel Broking

United Bank reported a weak performance for 3QFY2013, both on the operating as well as on the asset quality front. While the operating profit grew by a moderate 7% yoy, aided by better-than-expected 58.3% yoy growth in non-interest income, considering sequential deterioration in asset quality, the loan loss provisioning for the bank more than trebled and hence earnings declined by 81.3% yoy.

NIMs improve 8bp qoq; Slippages elevate to 4.3%: During 3QFY2013, the bank witnessed moderate growth in its business, as its advances and deposits grew by 10.1% and 11.2% yoy respectively. Loan growth was largely aided by higher priority sector lending, primarily to the agri sector (growth of 53.4% yoy), while SME advances grew by 14.3% yoy. Current deposits grew at a subdued pace of 7.3% yoy, while growth in savings deposits came in moderate at 13.1% yoy. CASA ratio improved 21bp yoy to 40.5%. The reported NIM for the bank improved sequentially by 8bp to 2.7%, as a 10bp sequential decline in cost of deposits was higher than the marginal 4bp fall in yield on advances. Non-interest income grew by 58.3%, aided by higher treasury gains and more than double income from exchange transactions. On the asset quality front, slippages came in sequentially higher at Rs. 680cr compared to Rs. 449cr in 2QFY2013. Annualized slippage ratio stood at 4.3% compared to 2.8% in last quarter. Recoveries/upgrades during the quarter came in at Rs. 126cr, compared to Rs. 133cr in 2QFY2013. On an absolute basis, gross and net NPA levels were higher sequentially by 20.0% and 19.2%, respectively. The gross NPA ratio increased by 54bp sequentially to 4.4%. The bank more than trebled its loan loss provisioning during the quarter, which limited the sequential decline in its net NPA ratio to 27bp. The bank's PCR dipped sequentially by 190bp to 67.3% (though was higher by 175bp yoy). Additionally, the bank's restructured book grew by Rs. 343cr during the quarter compared to an increase of Rs. 121cr in 2QFY2013. As of 3QFY2013, the bank's outstanding restructured book stood at Rs. 4,557cr (7.1% of advances).

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 valuation of 0.5x FY2014E ABV (one of the lowest in the industry). Most of the bank's peers are trading at 0.6x-0.7x FY2014E ABV, in spite of having similar and in some cases much lower CASA ratios. Hence we recommend a Buy rating on the stock with a target price of Rs. 82.

Source : Equity Bulls

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