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Union Bank of India: Positives Priced-In
Union Bank of India: Positives Priced-In
The bank added 215 outlets during 9MFY2010 and is planning to grow its network Beta 0.6
at approx 10% p.a. In fact, the bank improved Savings deposits market share by 52 Week High / Low 312/157
10bp in 9MFY2010 to 3.3% (one of few PSU banks like SBI to increase marketshare).
Avg. Daily Volume 1,84,999
With improving credit demand, the bank has ended 4QFY2010 with an advances
Face Value (Rs) 10
growth of 23.3% yoy (as against 8.4% YTD growth at the end of 3QFY2010), in
fact exceeding deposit growth of 22.7% yoy. We expect CASA market share gains BSE Sensex 17,591
and improving CD ratio to drive improvement in NIMs to 2.7% in 4QFY2010 (vs. Nifty 5,263
2.1% in 2QFY2010 when strong retail deposit growth and low credit demand had
Reuters Code UNBK.BO
led to a temporary decline in the CD ratio to 66.7%). In FY2011E as well we expect
NII growth of 26.0% (one of the highest amongst peers). Bloomberg Code UNBK@IN
Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
NII 3,814 3,920 4,938 5,605
% chg 23.6 2.8 26.0 13.5
Net PProfit
rofit 1727 2007 2159 2470
% chg 24.5 16.2 7.6 14.4
NIM (%) 2.8 2.3 2.5 2.4
EPS (Rs) 34.2 39.7 42.8 48.9 Vaibhav Agrawal
+91 22 4040 3800 Ext: 333
P/E (x) 9.0 7.7 7.2 6.3
Email: vaibhav.agrawal@angeltrade.com
P/ABV (x) 2.2 1.8 1.5 1.3
RoA (%) 1.2 1.1 1.0 1.0 Amit Rane
+91 22 4040 3800 Ext: 326
RoE (%) 27.2 25.6 22.8 21.9
Email: amitn.rane@angeltrade.com
Source: Company, Angel Research
One of the few PSU Banks to have The bank added 215 outlets during 9MFY2010 and is planning to grow its network at
improved its Savings Market share in ~10% p.a. Hence, we are relatively positive on the Bank's CASA growth outlook,
9MFY2010 owing to the relatively larger branch expansion plans that the Bank has than its peers.
In fact, the bank improved Savings deposits market share by 10bp in 9MFY2010 to
3.3% (one of few PSU banks like SBI to increase marketshare). During 3QFY2010, the
bank was able to improve its CASA ratio to 32.3% (from 30% at the end of FY2009),
registering a strong 12% YTD and 24.1% yoy growth in CASA deposits, reflective of
the strong traction in Retail deposits.
Focusing on TTech-
ech- enabled Solutions to
ech-enabled In order to compete with private banks, the bank is leveraging its advantage of a pan-
gain CASA market share India network, spread across rural and urban areas, of about 2,900 outlets and
2,250 ATMs, which are technologically up-to-date. The management pointed out
that they are rapidly closing gaps in tech-enabled products and functionalities such as
online banking, any branch banking, Cards for all types of accounts, online remittances,
etc. At the same time, as compared to private and regional banks, they have a much
stronger distribution reach, especially in semi-urban and rural areas. This gives them
a competitive advantage in offering services such as sophisticated cash management
services, intra-country remittances (for instance by workers in urban areas to their
hinterlands where private banks do not have a presence), etc.
Use of Alternative channels increasing The bank's continuing focus on offering customers a comprehensive range of channels
rapidly is evident from the fact that during FY2010, proportion of transactions through
Alternative Channels (such as Online Banking, RTGS, NEFT, etc.), which have increased
from 6% in FY2008 to 35% in FY2010. Management expects this to improve further to
50% by FY2011E.
With improving credit demand, the bank has ended FY2010 with an advances growth
of 23.3% yoy (as against 8.4% YTD growth at the end of 3QFY2010), in fact exceeding
deposit growth of 22.7% yoy. We expect CASA market share gains and improving CD
ratio to drive improvement in NIMs to 2.7% in 4QFY2010. In FY2011E as well we
expect NII growth of 26.0% (one of the highest amongst peers).
35.0
30.0
(% yoy)
25.0
20.0
15.0
10.0
5.0
0.0
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
4QFY2010E
Advances Growth Deposit Growth
The Capital Adequacy Ratio (CAR) of the bank stood at 13.5%, with Tier-1 Capital of
8.7%. The bank has also approached the Government for an infusion of Rs1,800cr,
however, nothing concrete has been announced by the Government on this front
so far.
2.0 120
100
(%)
1.5
76
(%)
80 73
67
1.0 63 60
60 55
43 40
0.5
40 32
22
- 20 15 12 10
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
2
-
ICICIBK
UNBK
SBI
SIB
OBC
IOB
PNB
BOI
CRPBK
AXSB
BOB
INDBK
HDFCBK
FEDBK
DENBK
The government had stopped recruitment in PSU Banks after 1985 and this hiring
freeze came to an end only in 2005. This imbalance is likely to result in a sudden
acute scarcity of experienced officers for PSU banks at the top management level. The
management shared that 58% of top management (AGM and above) were due for
retirement across PSU Banks over the next two years and expressed concerns about
effective replacement of this experienced core management, especially considering
the knowledge-intensive nature of the banking business.
In fact, compensation levels for fresh recruits and less-experienced staff have generally
been seen to match with the salaries offered by private banks for similarly experienced
staff. However, compensation tends to increase exponentially with increasing experience
in the case of private banks, while PSU banks have usually lagged behind in this
respect. Hence, over the next 2 years, PSU banks may face a challenge in managing
this massive and abrupt transition in their top management in a smooth and cost-
effective fashion.
350
300
250
200
150
100
50
0
Sep-02
Mar-03
Jun-03
Sep-03
Mar-04
Jun-04
Sep-04
Mar-05
Jun-05
Sep-05
Mar-06
Jun-06
Sep-06
Mar-07
Jun-07
Sep-07
Mar-08
Jun-08
Sep-08
Mar-09
Jun-09
Sep-09
Mar-10
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Price 0.3x 0.65x 1x 1.35x 1.7x
Source: Bloomberg, Angel Research
115
110
105
100
95
90
31-Dec
7-Jan
14-Jan
21-Jan
28-Jan
1-Apr
8-Apr
15-Apr
4-Mar
11-Mar
18-Mar
25-Mar
4-Feb
11-Feb
18-Feb
25-Feb
UBI Bankex
Source: Bloomberg, Angel Research
YoY Growth (%) 26.7 16.2 7.6 14.4 Net NPAs 0.3 0.1 0.1 0.1
Prov
rov.. for TTaxation
axation 630 732 788 901 Slippages 1.6 1.7 1.5 1.3
as a % of PBT 26.7 26.7 26.7 26.7 NPA prov. / avg. assets 0.4 0.4 0.4 0.3
PAT 1,727 2,007 2,159 2,470 Provision coverage 83.1 91.5 90.9 90.4
YoY Growth (%) 24.5 16.2 7.6 14.4 Per Share Data (Rs)
EPS 34.2 39.7 42.8 48.9
ABVPS (75% Cover) 139.7 170.6 204.0 241.8
Balance Sheet Rs crore
DPS 5.0 7.5 8.0 9.5
Y/E March FY2009 FY2010E FY2011E FY2012E
Valuation Ratios
Share Capital 505 505 505 505
P/E (x) 9.0 7.7 7.2 6.3
Reserve & Surplus 8,235 9,799 11,485 13,394
P/ABVPS (x) 2.2 1.8 1.5 1.3
Deposits 138,703 163,669 193,130 225,962
Dividend Yield 1.6 2.4 2.6 3.1
Growth (%) 33.5 18.0 18.0 17.0
DuPont Analysis
DuPont
Borrowings 3,885 3,634 4,289 5,018
NII 2.7 2.2 2.4 2.3
Tier 2 Capital 4,890 6,846 8,078 9,532 (-) Prov. Exp. 0.5 0.4 0.5 0.4
Other Liab. & Prov. 4,757 5,497 6,655 7,835 Adj. NII 2.2 1.8 1.9 1.9
Total Liabilities 160,976 189,951 224,142 262,246 Treasury 0.2 0.3 0.1 0.0
Cash balances 8,992 8,183 9,656 11,298 Int. Sens. Inc. 2.4 2.2 2.0 1.9
Bank balances 6,993 7,598 8,966 10,490 Other Inc. 0.8 0.8 0.8 0.8
Investments 42,997 48,196 56,966 65,353 Op. Inc. 3.2 2.9 2.8 2.7
Advances 96,534 119,027 140,452 165,733 Opex 1.6 1.4 1.3 1.3
Growth (%) 29.8 23.3 18.0 18.0 PBT 1.7 1.6 1.4 1.4
Fixed Assets 2,335 2,673 3,059 3,472 Taxes 0.4 0.4 0.4 0.4
Other Assets 3,124 4,274 5,043 5,901 RoA 1.2 1.1 1.0 1.0
Total Assets 160,976 189,951 224,142 262,246 Leverage 22.5 22.4 21.9 21.6
Growth (%) 29.7 18.0 18.0 17.0 RoE 27.2 25.6 22.8 21.9
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Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
Union Bank of India
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Research Team
Fundamental:
Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com
Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angeltrade.com
Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com
Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com
Anand Shah FMCG , Media anand.shah@angeltrade.com
Deepak Pareek Oil & Gas deepak.pareek@angeltrade.com
Puneet Bambha Capital Goods, Engineering puneet.bambha@angeltrade.com
Sushant Dalmia Pharmaceutical sushant.dalmia@angeltrade.com
Rupesh Sankhe Cement, Power rupeshd.sankhe@angeltrade.com
Param Desai Real Estate, Logistics, Shipping paramv.desai@angeltrade.com
Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angeltrade.com
Viraj Nadkarni Retail, Hotels, Mid-cap virajm.nadkarni@angeltrade.com
Paresh Jain Metals & Mining pareshn.jain@angeltrade.com
Amit Rane Banking amitn.rane@angeltrade.com
Rahul Jain IT rahul.j@angeltrade.com
Jai Sharda Mid-cap jai.sharda@angeltrade.com
Sharan Lillaney Mid-cap sharanb.lillaney@angeltrade.com
Technicals:
Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angeltrade.com
Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angeltrade.com
Derivatives:
Siddarth Bhamre Head - Derivatives siddarth.bhamre@angeltrade.com
Jaya Agarwal Derivative Analyst jaya.agarwal@angeltrade.com
Sandeep Patil Jr. Derivative Analyst patil.sandeep@angeltrade.com
Production Team:
Bharathi Shetty Research Editor bharathi.shetty@angeltrade.com
Dharmil Adhyaru Assistant Research Editor dharmil.adhyaru@angeltrade.com
Bharat Patil Production bharat.patil@angeltrade.com
Dilip Patel Production dilipm.patel@angeltrade.com
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