Union Bank of India rated ‘Buy’; performance in the quarter was decent


Union Bank of India Rating: ‘Buy’ Performance in the quarter was decent

Q2FY19 core PPOP was in line, and it reported PAT of Rs 1.4 bn vs our forecast of a loss of Rs 1.6 bn, due mainly to lower provisioning (coverage was flat q-o-q). Like most corporate banks, core PPOP performance (up 15% y-o-y) is stabilising, and with improved pricing power PPOP growth of 10% for FY19F is possible. The weak link in Union Bank remains its lower coverage at 51%, coupled with its weak capital position of CET-1 at 7.5%. Management acknowledges that the bank is behind peers on coverage, and that, along with 7-8% growth aspiration, poses material dilution risk.

We factor in Rs 50 bn of equity capital leading to 50% dilution over FY19-20F. With coverage ramp-up cover over the next few quarters, we expect Union Bank’s RoE to normalise to 10% by FY21F. With an improving PPoP outlook for corporate banks and undemanding valuations of <0.5x Sep-20 adjusted book, we maintain our Buy rating, with a lower TP of `90 based on 0.6x Sep-20 book (29% implied upside); but dilution risk remains large and hence we relatively prefer AXSB IN/ ICICI IN/SBIN IN – all Buy rated.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

You might also like More from author

Leave A Reply

Your email address will not be published.