Dear All,
Forwarding you the Result Flash on Union Bank of India for 4QFY2011 with a Buy recommendation.
For 4QFY2011, Union Bank of India posted a decent set of results on the operating front with sequentially stable NIMs and halving of slippages but employee benefit related liabilities were on the higher side. At the net profit level, numbers were flat sequentially (up 3.2%) as well as on a yoy basis (up marginally by 0.7%). Effective tax rate for the quarter (at 16.6%) compared to 32.7% in 3QFY2011, partly aided the profitability.
Key highlights:
· Business growth momentum was strong with advances and deposits growing at 12.9% qoq and 8.5% qoq, respectively. On a yoy basis, advances and deposits grew by 26.5% and 19.1%, respectively. CASA ratio declined sequentially to 31.8% from 33.3% in 3QFY2011.
· Reported NIMs surprised positively, remaining stable sequentially at 3.44%. Consequently, NII growth was above expectations, growing by 6.2% qoq and 22.9% yoy. Non-interest income growth was also strong both sequentially as well as on a yoy basis, registering a growth of 21.8% qoq and 21.9% yoy.
· Operating expenses increased by a substantial 70.6% qoq and 95.3% yoy, primarily due to 102.3% qoq and 148.5% yoy spurt in employee expenses due to the hit of employee-benefit related liabilities. During FY2011 the bank made a provision for enhancement in gratuity limits of Rs65cr (1/5th of total liability of Rs325cr). It also took a hit of Rs338cr (1/5th of total liability of Rs1,690cr) towards additional liability for serving employees under the second pension option and 100% of the liability (Rs376cr) towards second pension option liability for retired employees.
· On the asset quality front, the bank showed considerable improvement with slippages ratio for the quarter declining to Rs406cr compared to an average of Rs839cr in the first three quarters of FY2011. Consequently the annualized slippage ratio for the quarter halved to 1.4% from 2.8% in 9MFY2011. However overall Gross and Net NPAs increased by 11.3% qoq and 12.9% qoq, respectively. Due to strong loan growth, the gross NPA ratio improved sequentially to 2.4% from 2.7% in 3QFY2011, while Net NPA ratio remained stable sequentially at 1.2%. Provision coverage ratio including technical write-offs declined to 67.6% from 70.2% in 3QFY2011. Due to lower slippages and relaxation of 70% PCR norm, provisioning expenses for the quarter fell by 61.7% qoq and 54.9% yoy to Rs153cr.
At the CMP, the stock is trading at attractive valuations of 1.1x FY2013E ABV compared to its five-year trading range of 1.0-1.5x with a median of 1.3x. Hence we maintain our Buy recommendation on the stock. We may revise our estimates and target price post interaction with the management.
Exhibit 1: 4QFY2011- Actual vs. Estimates
| Particulars (Rs cr) | Actual | Estimates | Var. (%) |
| Net interest income | 1,717 | 1,664 | 3.2 |
| Non-interest income | 601 | 492 | 22.1 |
| Operating income | 2,317 | 2,155 | 7.5 |
| Operating expenses | 1,448 | 868 | 66.8 |
| Pre-prov. profit | 870 | 1,287 | (32.5) |
| Provisions & cont. | 153 | 476 | (67.8) |
| PBT | 716 | 811 | (11.7) |
| Prov. for taxes | 119 | 191 | (37.7) |
| PAT | 598 | 621 | (3.7) |
Source: Company, Angel Research
Exhibit 2: 4QFY2011 Performance summary
| Particulars (Rs cr) | 4QFY2011 | 3QFY2011 | % chg (qoq) | 4QFY2010 | % chg (yoy) |
| Interest earned | 4,615 | 4,199 | 9.9 | 3,562 | 29.6 |
| Interest expenses | 2,899 | 2,584 | 12.2 | 2,166 | 33.9 |
| Net interest income | 1,717 | 1,616 | 6.2 | 1,396 | 22.9 |
| Non-interest income | 601 | 493 | 21.8 | 493 | 21.9 |
| Operating income | 2,317 | 2,109 | 9.9 | 1,889 | 22.7 |
| Operating expenses | 1,448 | 848 | 70.6 | 741 | 95.3 |
| Pre-prov. profit | 870 | 1,261 | (31.0) | 1,148 | (24.2) |
| Provisions & contingencies | 153 | 400 | (61.7) | 340 | (54.9) |
| PBT | 716 | 861 | (16.8) | 808 | (11.3) |
| Prov. for taxes | 119 | 282 | (57.8) | 214 | (44.5) |
| PAT | 598 | 579 | 3.2 |
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