Motilal Oswal Maintains Buy on Union Bank of India

UNION BANK 3QFY11: Margins improve QoQ; Asset Quality disappoints once again; Maintain Buy

NII grew 48% YoY and 5% QoQ led by 67bp YoY and 9bp QoQ improvement in NIMs to 3.44%. Adjusted for one-offs in 2QFY11, NIMs improved 23bp QoQ.

CASA ratio improved ~60bp QoQ to 33.3%. CASA grew 27% YoY and 7% QoQ led by strong growth in savings deposits (33%YoY and 10.4% QoQ)

Loans grew ~26% YoY and ~6% QoQ to Rs1.34t. For FY11, mgmt targets loan growth of 25%, implying a sequential growth of ~14% in 4QFY11.

Fee income grew 7% YoY in 3QFY11, flat QoQ. Mgmt targets fee income growth of 15% for FY11.

Addition to Gross NPAs was higher than expected at Rs7.7b (annualized slippage ratio of 2.6%). PCR incl technical write-off stood was stable QoQ at ~ 70%.

We estimate 22% EPS CAGR over FY11-13E. RoAs are likely to be ~1% and RoE of 22-23% over FY11-13E. We expect the bank to report EPS of Rs41 in FY11, Rs51 in FY12 and Rs62 in FY13. BV is expected to be Rs248 in FY12 and Rs298 in FY13. Stock trades at 1.4x FY12 BV and 1.1x FY13E BV. Maintain Buy with a target price of Rs450 (1.5x FY13E BV).

Source : Equity Bulls

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