Union Bank of India - Value Pick; Reiterate "BUY" - Karvy

Selective Growth in Credit: While the overall credit of Union Bank of India (UBI) in corporate segment is slowing down, its Management expects a moderate growth in credit of over 18% in FY14 driven by Retail, Agriculture & SME segments. The Bank is focusing more in Tier-II & Tier-III cities for expanding retail credit. The Bank's delinquency experience in SME segment has been better than peers. Its overseas segment is growing over 30% and now it forms 7% of loan book.

NIMs - Expected to Remain Stable: UBI's NIMs declined by 40 bps to 2.6% over last year. Its Management expects that the Bank's NIMs to stabilize at current levels, going forward. The pressure on NIMs owing to discounts on retail segment would be offset by moderate growth in SME segment and improvement of CASA.

Asset Quality Needs To Be Watched: UBI had reported healthy numbers in H2FY14 while the average slippages were contained at 1.6%. Post that the Bank reported slippage in excess of 3% for consecutive two quarters. As a result the Bank's Gross NPA surged over 60 bps to 3.6%. UBI's outstanding restructured portfolio has been flattish at 5% of loan book.

Dividend Yield of Over 6%: UBI is one of the few large-cap banking stocks where there is an attractive dividend yield of over 6%.

Outlook & Valuation

We reiterate our "BUY" recommendation on UBI with unrevised target price of Rs. 160 per share valuing the bank at 0.6x P/ABV FY15E.

Source : Equity Bulls

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