A Quarter with Stable Numbers... Deposits grew by 2.2% (YoY) with CASA portfolio registering a growth of ~5.5% during the same period. GNPA & NNPA decreased by 8bps and 85bps at 15.7%& 8.4% resp. NIM witnessed an improvement of 5bps while NII de- grew by 2% on a YoY basis. Advances de-grew by 1% while deposits increased by 1% (YoY) We factor 16% CAGR in loan book and 20% CAGR in NII over FY19E21E. We value Union Bank at 0.4x FY21E book value and recommend hold with a target price of Rs88.
Union Bank of India’s (UNBK) Q2FY19 results are characterised by an improving asset quality trend even as business momentum continues to be soft. Key highlights: A) Slippages were restricted to INR26.7bn (3.6% versus >6% over last six quarters). Furthermore, higher recoveries edged down GNPLs. Going forward, the recovery trend (NCLT cases) and slippages in the power sector (only 26% recognised, much lower than peers) would be the key variables. B) From a business perspective, momentum remains soft (loan growth flat YoY), leading to softer NII (up <8% YoY), but lower opex lent support. Factoring lower treasury profits we prune our FY19 EPS by 12%. We believe dilution risks (CET1 at 7.5%) and structural challenges would persist for midsized PSU banks. Hence, we expect UNBK’s valuation to remain under pressure. Maintain ‘HOLD’.
Asset quality deteriorates, outlook remains murky. UNBK is available at low <1x FY2019E book value, which is a reflection of its weak asset-quality outlook that could further result in subdued bottom-line numbers. We maintain our Reduce rating on the stock with an unchanged price target (PT) of Rs. 80.