7 November 2015
2QFY16 Result Update | Sector:
Financials
BSE SENSEX
26,265
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val(INR m)
Free float (%)
S&P CNX
7,954
UNBK IN
630.3
103/1.6
254/130
-9/25/-21
908
36.6
Union Bank of India
CMP: INR163
TP: INR215 (+32%)
Buy
Headline beat; Judicious use of capital continues; NSL low at 6.6%
Financials & Valuation (INR b)
Y/E Mar
2016E 2017E 2018E
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. INR
RoE (%)
RoA (%)
Valuations
P/E(X)
P/BV (X)
Div. Yield (%)
88
61.9
24.9
2.4
36.2
29.6
312
223
12.5
0.6
4.5
0.52
3.3
103
74.4
30.6
2.5
44.5
22.9
348
246
13.5
0.7
3.7
0.47
4.1
119
87.4
36.7
2.5
53.4
19.9
392
280
14.4
0.7
3.1
0.42
4.9
Union Bank’s 2QFY16 PAT grew by +77% YoY to INR6.6b (26% beat), driven by
one-off provision reversal of INR3.2b on restructured loans and INR1.1b
investment provision write back (40%+ of PBT).
Core PPoP (adj. for INR794m one-off expense) grew 3% YoY (-11% QoQ) –
impacted by muted loan growth (4% YoY) and decline in NIMs (down 20bp YoY).
Despite healthy trading gains (+3.5x YoY); revenue growth was muted at 2% YoY.
Slippages increased QoQ to INR19.3b (3.2% of loans, annualized) v/s INR15.1b
(2.6%) – impacted by one construction sector exposure of INR8b+ and relapse
from RL of INR9.8b (v/s INR6.2b in 1Q). Fresh restructuring was lower at INR4.1b
(INR7.5b in 1Q). Three accounts were restructured under 5:25 scheme amounting
to INR9b (v/s INR62.4b in 1Q). There was no SDR / sale to ARC in 2Q.
OSRL declined 2% QoQ to INR139.1b. OSRL (ex-SEB) remains the lowest (3.2% of
loans) among peers. Overall NSL (ex SEB) increased to 6.6% (+30bp QoQ).
Loan growth remains subdued at 3% YoY (flat QoQ). With the lower CET1 7.9%
focus remains on lower risk weighted RAM (Retail, Agriculture and MSME) for
growth (10% YoY/2% QoQ) which is also increasing granularity of balance sheet.
Valuation and view:
UNBK has one of the lowest restructured loans amongst the
peers and has aggressively recognized NPAs. While capitalization is low, focus on
conserving capital and moderate risk weighted asset growth is positive. Earnings
sensitivity to credit cost and NIMs has increased significantly with low ROAs. Lower
net stress additions in the ensuing quarters can result in strong earnings upside.
Valuations at 0.5x PBV and 12-13% ROE provide comfort. We raise FY16/17 earnings
estimates by 3-10%. Reiterate Buy with a target price of INR215 (0.6x FY17E BV).
Investors are advised to refer through disclosures made at the end of the Research Report.
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Dhaval Gada
(Dhaval.Gada@MotilalOswal.com); +91 22 3982 5505
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Union Bank of India
Exhibit 1: Quarterly Performance (INR m)
Y/E March
Net Interest Income
% Change (YoY)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (YoY)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (YoY)
2QFY16A
21,017
1
9,595
30,612
16,505
14,107
6
4,325
9,782
3,200
6,582
77
2QFY16E
22,104
6
8,997
31,100
16,474
14,627
10
6,845
7,782
2,568
5,214
40
Var. (%)
-5
7
-2
0
-4
-37
26
25
26
Comments
NIM and loan growth below expectation
Better than expected trading gains
In-line
Credit costs higher than est. offset by one-off
provision reversal on restructured loans
PPP miss despite higher than expected trading
gains; one-off provision reversal drove PAT beat
Source: MOSL, Company
Other highlights
Overseas loans grew by 34%
YoY (+5% QoQ) – now
account for ~10% of overall
loans
Global NIM declined by 5bp QoQ to 2.34%. Domestic NIM declined by 4bp QoQ
at 2.42%. Domestic yield on funds declined 25bp QoQ to 8.77%, while domestic
cost of funds declined 18bp to 6.53%.
Healthy growth in key focus areas: Retail segment (+18% YoY; +3% QoQ), MSME
(-3% YoY; +3% QoQ) – reclassified as per RBI guidelines and Agriculture (+26%
YoY; flat QoQ).
Both Infra sector (-3% QoQ, -2% YoY) and basic metal loans (-2% QoQ, +7% YoY)
de-grew; Textiles loans decreased by 25% QoQ (-22% YoY) and Food processing
book decreased 18% QoQ (+25% YoY).
Overseas advances grew by 34% YoY (+5% QoQ) – now account for ~10% of
overall advances v/s ~8% in 2QFY16.
MTM depreciation on investments was high at INR2.6b (26% of PBT)
CASA grew by 10% YoY and CASA ratio increased to 28.6%; share of bulk
deposits now stand at 2% (v/s 10% in 2QFY15).
During 2Q, bank received INR10.8b (~40bp addition) fresh equity capital from
GOI.
LCR ratio improved to 141% v/s 116% in 1QFY16.
Proportion of stalled projects in restructured loans has come down to INR15.4b
v/s INR36.8b a quarter ago.
7 November 2015
2
 Motilal Oswal Financial Services
Union Bank of India
2QFY16 conference call highlights
Guidance on FY16
(a) GNPA ratio 5.25-5.5%, (b) Credit costs 1%, (c) Exit domestic NIM 2.55-2.60%,
(d) Loan and deposit growth of 10-11% and 6-7% respectively, (e) Domestic
CASA ratio at 32%
Planning to reach ROA 1% over next two years however, capital requirements
will keep ROEs below 15%
Asset Quality
Gross slippage includes INR8b+ of EPC related account – have provided INR1.2b
against this account
Three accounts were restructured under 5:25 scheme amounting to INR9b (two
steel and one power sector account); There is further INR4.25b pipeline (steel
sector account)
Relapse from restructured loans was INR4b (3 accounts) Had put INR11-12b on
block for sale to ARC
Of the restructured loans proportion of stalled projects has come down to
INR15.4b vs INR36.8b a quarter ago
SEB discom restructured at INR53b. UDAY package will be P&L Neutral in the
initial years
Nothing has been done in SDR so far. From a pipeline perspective one account
from steel sector where SDR can be invoked. Bank has INR4b exposure to this
account
Higher NPLs in retail loans are from educational loans.
Outstanding SR at INR5.38b
Other highlights
Average age of banks employees at 40 years v/s 43 years two years ago
Digital channels (including ATMs) account for 63% of the transactions and
expected to increase to 75%
Mobile banking customers more than doubled in last one year
44 digital branches in several cities and expected to increase to 100 by year end
CET1 including 1HPAT stands at 7.87%. Bank has shareholders’ approval to raise
~INR26.2b. Bank plans to AT1 capital of ~INR38b
High cost deposits are down to 2.2% of deposits v/s 10% a year ago
Buy with a target price of
INR215 (0.6x FY17E BV).
Valuation and view
Over FY09-15, Union Bank (UNBK) core performance weakened (earning flat
during the same period but balance sheet size doubled) and asset quality
deteriorated in lieu of weak macro-economic environment, strong growth in
SME, Agri (in a bad economic environment) and higher exposure in consortium
lending.
The new management key focus areas are (a) to consolidate loan book (+3%
YoY) (b) focus on profitability (c) focus on HR issues and (d) conserve capital.
Focus on higher yielding Agri and MSME segments, gradual improvement in
CASA, granular liability profile (bulk deposits at ~2.2%) will reduce pressure on
3
7 November 2015
 Motilal Oswal Financial Services
Union Bank of India
margins in the falling interest rate environment. Moderate balance sheet
growth will keep the CASA ratio in tact which in turn will cushion margins.
Underlying potential: (a) Very strong presence in SME especially west and
central region of the country, (b) Low hanging fruits like operating leverage, fees
improvement and improvement in CA balances available to improve profitability
Sensitivity of earnings to risk-adjusted NIMs has increased significantly. With
every (1) 10bp NIM expansion, earnings could see an upgrade of ~10%, and (2)
10bp decline in credit cost, earnings increase by ~8%. We expect earnings CAGR
of 27% over FY15-18 (earnings were flat over FY09-15).
UNBK trades at 0.5x (vs. long period average of 1.0x), with improving macro
conditions and policy reform setting in, balance sheet consolidation and focus
on core parameters, we expect a re-rating in the stock. Lowest NSL of 6.6%
provides comfort. Buy with a target price of INR215 based on the residual
income model. Our key assumptions are risk free rate of 7.5%, Beta of 1.3, Cost
of equity of 14.7%, Terminal growth rate of 5% and average earnings growth of
10% over FY15-30E
Exhibit 2: Raise earnings estimate by 3-10% to factor in lower other provisions
INR B
FY16
Net Interest Income 89.9
Other Income
37.8
Total Income
127.7
Operating Expenses 65.1
Operating Profits
62.6
Provisions
27.7
PBT
34.9
Tax
12.2
PAT
22.7
Margins (%)
2.38
Credit Cost (%)
0.90
RoA (%)
0.6
RoE (%)
11.8
BV
317
ABV
227
EPS
36
Old Est.
FY17
104.5
41.9
146.4
74.1
72.4
28.8
43.6
14.0
29.6
2.45
0.75
0.7
13.9
356
258
47
FY18
124.2
46.9
171.1
84.3
86.8
32.8
54.0
17.3
36.7
2.53
0.75
0.7
15.2
403
308
58
FY16
87.5
38.4
126.0
64.0
61.9
23.6
38.3
13.4
24.9
2.38
1.00
0.6
12.5
312
223
36
New Est.
FY17
102.7
43.3
146.0
71.6
74.4
28.0
46.4
15.8
30.6
2.49
0.75
0.7
13.5
348
246
45
FY18
118.7
48.6
167.3
79.9
87.4
31.8
55.6
18.9
36.7
2.53
0.75
0.7
14.4
392
280
53
FY16
-2.7
1.7
-1.4
-1.6
-1.1
-14.7
9.6
9.6
9.6
% Change
FY17
-1.8
3.3
-0.3
-3.4
2.9
-2.5
6.4
13.0
3.2
FY18
-4.4
3.6
-2.2
-5.2
0.6
-3.2
2.9
9.4
-0.1
-1.7
-2.0
-2.7
-2.0
-4.9
-8.9
1.4
-4.5
-7.6
Source: MOSL, Company
Exhibit 3: One year forward P/BV
2.0
1.4
1.0
0.8
0.4
0.2
0.5
PB (x)
Peak(x)
Avg(x)
1.7
Min(x)
Exhibit 4: One year forward P/E
14
11
8
5
2
6.1
3.0
3.7
PE (x)
Peak(x)
Avg(x)
10.8
Min(x)
Source: MOSL, Company
Source: MOSL, Company
7 November 2015
4
 Motilal Oswal Financial Services
Union Bank of India
Exhibit 5: DuPont Analysis: Improvement in core operating performance and asset quality to drive RoAs higher
Y/E MARCH (%)
Net Interest Income
Fee income
Fee to core Income
Core Operating Income
Operating Expenses
Cost/core Income ratio
Employees
Emp/Total Exp Ratio
Others
Core Operating Profits
Trading and others
Operating Profits
Provisions
NPA
Others
PBT
Tax
Tax Rate
RoA
Leverage (x)
RoE
FY08
2.52
0.45
15.0
2.96
1.41
47.4
0.75
53.1
0.66
1.56
0.72
2.28
0.64
0.52
0.13
1.63
0.41
25.1
1.22
21.9
26.8
FY09
2.68
0.47
14.9
3.14
1.55
49.4
0.81
52.0
0.75
1.59
0.57
2.16
0.52
0.38
0.13
1.65
0.43
26.4
1.21
22.5
27.2
FY10
2.35
0.50
17.6
2.86
1.41
49.3
0.76
54.0
0.65
1.45
0.61
2.05
0.46
0.39
0.07
1.59
0.43
26.8
1.17
22.5
26.2
FY11
2.88
0.43
13.1
3.32
1.83
55.2
1.21
65.8
0.63
1.48
0.51
2.00
0.63
0.55
0.08
1.37
0.41
29.6
0.97
21.7
20.9
FY12
2.73
0.47
14.6
3.19
1.60
50.1
1.00
62.2
0.61
1.59
0.52
2.11
1.02
0.61
0.41
1.09
0.37
34.1
0.72
20.7
14.9
FY13
2.63
0.42
13.7
3.04
1.57
51.7
0.96
61.1
0.61
1.47
0.47
1.94
0.88
0.54
0.34
1.07
0.32
29.6
0.75
20.0
13.6
FY14
2.37
0.40
14.4
2.76
1.65
59.6
0.99
60.3
0.65
1.12
0.45
1.57
0.95
0.63
0.31
0.62
0.11
17.9
0.51
20.5
10.4
FY15
2.30
0.42
15.3
2.71
1.67
61.6
1.03
61.6
0.64
1.04
0.54
1.58
0.83
0.69
0.14
0.76
0.27
36.0
0.48
20.9
10.1
FY16E
FY17E
FY18E
2.17
2.28
2.30
0.42
0.44
0.44
16.3
16.1
16.0
2.60
2.71
2.74
1.59
1.59
1.55
61.2
58.5
56.5
0.96
0.95
0.93
60.4
60.1
59.9
0.63
0.63
0.62
1.01
1.13
1.19
0.53
0.52
0.50
1.54
1.65
1.69
0.59
0.62
0.62
0.67
0.50
0.49
-0.08
0.13
0.12
0.95
1.03
1.08
0.33
0.35
0.37
35.0
34.0
34.0
0.62
0.68
0.71
20.3
19.9
20.3
12.5
13.5
14.4
Source: MOSL, Company
Exhibit 6: DuPont Analysis: Core PPoP moderates; one-off provision reversal aids profitability during the quarter
Y/E MARCH
Net Interest Income
Fee income
Fee to core income
Core Income
Operating Expenses
Cost to Core Income
Employee cost
Others
Core operating Profits
Trading and others
Operating Profits
Provisions
NPAs
Others
PBT
Tax
Tax Rate
RoA
Leverage (x)
RoE
1QFY14
2.42
0.45
15.6
2.86
1.59
55.4
1.00
0.59
1.28
0.51
1.79
0.86
0.61
0.25
0.92
0.22
23.3
0.71
19.8
14.0
2QFY14
2.37
0.45
16.0
2.82
1.63
57.6
0.98
0.65
1.20
0.29
1.49
1.14
0.55
0.58
0.35
0.10
27.8
0.25
20.2
5.1
3QFY14
2.30
0.46
16.6
2.76
1.62
58.7
0.96
0.65
1.14
0.34
1.48
0.71
0.58
0.13
0.76
0.35
46.4
0.41
20.7
8.5
4QFY14
2.35
0.60
20.2
2.95
1.73
58.6
1.02
0.71
1.22
0.29
1.51
1.06
0.77
0.29
0.46
-0.21
-45.0
0.66
20.9
13.8
1QFY15
2.38
0.38
13.8
2.77
1.62
58.5
1.04
0.58
1.15
0.40
1.55
0.44
0.48
-0.04
1.10
0.35
32.2
0.75
20.6
15.4
2QFY15
2.33
0.50
17.7
2.83
1.74
61.7
1.05
0.69
1.08
0.41
1.49
0.88
0.67
0.20
0.61
0.20
32.3
0.41
20.1
8.3
3QFY15
2.32
0.50
17.7
2.81
1.67
59.5
1.06
0.62
1.14
0.46
1.60
0.93
0.74
0.19
0.67
0.34
50.7
0.33
20.1
6.6
4QFY15 1QFY16 2QFY16
2.25
2.21
2.15
0.67
0.44
0.48
22.9
16.5
18.3
2.92
2.65
2.63
1.71
1.48
1.69
58.6
55.8
64.2
1.02
0.88
1.03
0.70
0.59
0.66
1.21
1.17
0.94
0.54
0.37
0.50
1.75
1.54
1.44
1.07
0.67
0.44
0.88
0.50
0.94
0.19
0.17
-0.50
0.68
0.88
1.00
0.21
0.34
0.33
30.9
38.7
32.7
0.47
0.54
0.67
20.5
20.7
19.9
9.7
11.2
13.4
Source: MOSL, Company
7 November 2015
5
 Motilal Oswal Financial Services
Union Bank of India
Story in charts
Exhibit 7: Credit costs spikes QoQ partly led by one large
slippage of INR8b (~20bp impact on credit costs)
Net Slippage Ratio (%)
1.0
1.3
1.1
0.5
1.0
0.8
1.2
0.4
0.9 0.9 0.9
1.2
0.7
Credit Cost (%)
1.0 1.1
1.3
0.8
1.5
49
45 44 43 45
42
50
47 45
42 42
4444 44 43
47 46 46
Exhibit 8: GNPAs increase 10% QoQ; led by higher slippages
and moderate upgrade/ recoveries; PCR stable QoQ
Gross NPA (%)
Net NPA (%)
PCR (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 9: Corporate slippage (~60%+ of overall slippage) on
a rise
Corporate Slippage (INR b)
1
14
2
8
2
8
2
9
13
4
SME Slippage (INR b)
Exhibit 10: Slippage from RL now form 51% of total
slippages (%)
Share of NPA in RL (%)
24
22
30
19
10
23
26
25
Slippages from RL (%)
29
26
51
41
2
11
5
10
6
7
2
10
3
12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: Global margin continue to trend lower (%)
Exhibit 12: Fee income growth remains moderate
66
4
38 39 17
Fee Inc. (INR b)
18
-6
19
YoY Gr. (%)
20
6 14
-4
21 16 21 25
5
-10
Source: Company, MOSL
Source: Company, MOSL
7 November 2015
6
 Motilal Oswal Financial Services
Union Bank of India
Exhibit 13: Quarterly Snapshot
FY14
INR m
Profit and Loss
Net Interest Income
Other Income
Trading profits
Forex Income
Recoveries
Core Fees
Total Income
Operating Expenses
Employee
Others
Operating Profits
Provisions
NPA provisions
Provisions on Invst.
Others
PBT
Taxes
PAT
Ratios (%)
Fees of Total Income
Cost to Core Income
Tax Rate
CASA (Cal)
Loan/Deposit
Reported
Yield on Funds
Cost of Funds
Spreads
Margins
Margins - Cumulative (%)
Yield on Funds
Cost of Funds
Spreads
Margins - Cumulative
Franchise
Branches
ATM
1Q
19,091
7,563
2,390
1,190
460
3,523
26,654
12,536
7,899
4,637
14,118
6,816
4,830
690
1,296
7,302
1,700
5,602
13.2
55.4
23.3
29.1
73.1
8.9
6.4
2.5
2.6
8.9
6.4
2.5
2.6
3,604
5,006
2Q
19,545
6,112
950
740
710
3,712
25,656
13,407
8,067
5,340
12,249
9,368
4,560
800
4,008
2,882
801
2,081
14.5
57.6
27.8
28.3
75.7
8.9
6.5
2.4
2.5
8.9
6.5
2.4
2.6
3,671
5,337
3Q
19,635
6,799
700
1,310
870
3,919
26,434
13,818
8,232
5,586
12,616
6,104
4,970
440
694
6,512
3,023
3,489
14.8
58.7
46.4
28.8
78.2
9.0
6.7
2.4
2.5
8.9
6.5
2.4
2.6
3,752
5,830
4Q
20,522
7,743
830
1,110
610
5,193
28,265
15,067
8,880
6,187
13,198
9,205
6,700
50
2,455
3,993
-1,797
5,790
18.4
58.6
-45.0
29.5
77.0
9.0
6.6
2.4
2.6
9.0
6.6
2.4
2.6
3,949
6,429
1Q
21,172
6,914
990
1,520
1,020
3,384
28,086
14,366
9,194
5,172
13,719
3,928
4,260
-990
658
9,791
3,150
6,641
12.0
58.5
32.2
29.1
78.7
9.1
6.7
2.5
2.6
9.1
6.7
2.5
2.6
3,966
6,621
2Q
20,844
8,113
750
1,960
920
4,483
28,958
15,618
9,443
6,175
13,339
7,854
6,030
790
1,034
5,485
1,772
3,713
15.5
61.7
32.3
28.7
79.4
9.1
6.7
2.4
2.5
9.1
6.7
2.4
2.6
4,003
6,628
FY15
3Q
21,212
8,772
2,520
1,280
420
4,552
29,985
15,331
9,659
5,672
14,653
8,519
6,740
-260
2,039
6,134
3,110
3,024
15.2
59.5
50.7
28.7
77.2
8.9
6.6
2.4
2.5
9.0
6.6
2.4
2.5
4,112
6,618
4Q
21,211
11,431
2,830
1,500
800
6,301
32,641
16,118
9,559
6,559
16,523
10,099
8,330
470
1,299
6,423
1,986
4,438
19.3
58.6
30.9
29.2
80.7
8.7
6.4
2.2
2.4
8.9
6.5
2.3
2.5
4,159
7,020
1Q
21,302
7,832
1,950
1,260
400
4,222
29,134
14,252
8,533
5,719
14,882
6,424
4,800
2,050
-426
8,458
3,270
5,188
14.5
55.8
38.7
28.3
75.8
8.7
6.5
2.2
2.4
8.7
6.5
2.2
2.4
4,082
6,877
FY16
2Q
21,017
9,595
2,590
1,760
550
4,695
30,612
16,505
10,055
6,450
14,107
4,325
9,240
-1,130
-3,785
9,782
3,200
6,582
15.3
64.2
32.7
28.6
74.5
8.4
6.3
2.2
2.3
8.6
6.4
2.2
2.4
4,095
Variation (%)
QoQ
YoY
-1
23
33
40
38
11
5
16
18
13
-5
-33
93
NM
NM
16
-2
27
1
18
245
-10
-40
5
6
6
6
4
6
-45
53
NM
NM
78
81
77
30
-134
-27
-21
-6
-5
-13
-10
-3
-3
0
-11
-496
-66
-45
-21
-19
-53
-32
-21
-20
2
6,909
0
4
Source: MOSL, Company
7 November 2015
7
 Motilal Oswal Financial Services
Union Bank of India
Exhibit 14: Quarterly Snapshot continued
INR b
Balance Sheet
Loans
Deposits
Investments
HTM
AFS
AFS Modified Duration
Deposits Break Up
CASA Deposits
% of total Deposits
Savings
% of total Deposits
Current
% of total Deposits
Term Deposits
% of total Deposits
Loan Break Up
Agriculture
SME Loans
Retail Loans
Other loans
Asset Quality
Movement of NPA
Opening
Additions
Deductions
Upgradation and recovery
Write offs
Closing
Annualized Slippage Ratio (%)
Credit cost (%)
GNPA (%)
NNPA (%)
O/S standard Restructured loans
% of the loan book
FY14
1Q
2,026
2,716
913
687
230
2.9
791
29.1
577
21.2
214
7.9
1,925
70.9
205
347
204
1,270
2Q
2,217
2,870
956
725
237
1.9
811
28.2
608
21.2
203
7.1
2,060
71.8
222
374
224
1,397
3Q
2,268
2,851
938
707
235
2.9
821
28.8
611
21.4
210
7.4
2,030
71.2
230
423
237
1,377
4Q
2,343
2,977
937
720
222
3.0
878
29.5
651
21.9
227
7.6
2,099
70.5
256
454
249
1,384
1Q
2,384
2,974
827
710
211
2.6
866
29.1
644
21.7
222
7.5
2,108
70.9
266
456
268
1,395
2Q
2,434
3,002
916
694
226
3.4
862
28.7
674
22.5
188
6.3
2,140
71.3
287
492
285
1,369
FY15
3Q
2,470
3,129
1,012
772
243
3.8
899
28.7
680
21.7
219
7.0
2,230
71.3
297
528
302
1,343
4Q
2,618
3,169
845
709
229
4.4
927
29.2
716
22.6
211
6.7
2,242
70.8
316
557
317
1,429
FY16
1Q
2,546
3,273
1,012
736
282
4.4
926
28.3
713
21.8
214
6.5
2,347
71.7
362
464
327
1,393
Variation (%)
QoQ
YoY
-3
3
20
4
23
7
10
22
4
34
0
0
1
5
7
11
-4
11
15
-17
3
-2
36
2
22
0
63.1
14.7
6.9
4.4
2.5
70.9
3.4
0.9
3.5
2.0
103.4
5.1
70.9
16.6
6.9
4.2
2.7
80.6
3.8
0.9
3.6
2.2
109.4
4.9
80.6
11.5
4.4
2.7
1.7
87.8
2.4
0.9
3.9
2.3
110.3
4.9
87.8
12.0
4.1
1.9
2.2
95.6
2.3
1.2
4.1
2.3
123.5
5.3
95.6
12.7
6.1
3.2
2.9
102.3
2.6
0.7
4.3
2.5
119.7
5.0
102.3
19.7
7.4
5.6
1.8
114.6
3.6
1.0
4.7
2.7
126.0
5.2
114.6
17.4
6.0
3.9
2.2
126.0
3.1
1.1
5.1
3.0
123.5
5.0
126.0
15.5
11.1
8.7
2.5
130.3
2.7
1.3
5.0
2.7
136.6
5.2
130.3
15.1
-3
18
4.0
-64
-35
2.4
-73
-25
1.6
-36
-45
141.4
9
38
2.6
-12
1
0.8
-58
3
5.5
57
126
3.1
37
62
141.3
3
18
5.5
33
53
Source: Company, MOSL
7 November 2015
8
 Motilal Oswal Financial Services
Union Bank of India
Exhibit 15: Financials -
Valuation metrics
66
Rating
ICICIBC*
HDFCB
AXSB
KMB*
YES
IIB
DCBB
FB
JKBK
SIB
Private Aggregate
SBIN (cons)*
PNB
BOI
BOB
CBK
UNBK
OBC
INBK
CRPBK
ANDB
IDBI
DBNK
Public Aggregate
HDFC*
LICHF
DEWH
IHFL
GRHF
REPCO
IDFC
RECL
POWF
SHTF
MMFS
BAF
MUTH
NBFC Aggregate
CMP
Mcap
EPS (INR)
P/E (x)
BV (INR)
P/BV (x)
FY17
1.20
3.27
1.85
3.14
1.96
2.71
1.26
1.03
0.56
0.66
2.32
0.90
0.54
0.31
0.87
0.44
0.46
0.28
0.42
0.27
0.34
0.49
0.32
0.64
3.63
2.16
1.04
2.32
8.83
3.81
0.22
0.66
0.71
1.81
1.88
3.35
1.45
2.25
RoA (%)
FY16
1.58
1.88
1.69
1.11
1.67
2.04
0.84
0.86
0.85
0.55
0.70
0.57
0.20
0.42
0.39
0.56
0.55
0.50
0.54
0.55
0.58
0.36
2.46
1.48
1.27
3.91
2.18
2.08
1.75
3.22
3.08
2.08
1.93
3.12
2.65
FY17
1.58
1.86
1.70
1.40
1.73
2.08
0.73
0.95
0.92
0.58
0.77
0.70
0.25
0.57
0.48
0.65
0.62
0.65
0.64
0.62
0.69
0.44
2.55
1.55
1.29
4.07
2.05
2.28
1.83
3.23
2.97
2.29
2.22
2.92
2.85
RoE (%)
FY16
15.0
18.4
17.5
13.9
19.8
17.6
9.3
9.5
10.7
9.4
11.7
9.3
4.8
7.9
8.0
11.8
9.7
7.8
12.3
10.3
9.5
7.2
23.6
20.1
15.6
25.9
28.9
16.8
8.8
22.9
20.5
14.0
11.5
19.9
14.3
FY17
15.3
19.3
17.8
14.5
21.2
16.1
9.2
11.0
12.1
10.3
13.1
11.6
6.4
10.8
10.1
13.9
11.3
10.6
14.7
12.2
11.9
9.6
22.7
21.3
17.2
24.8
28.6
20.7
9.8
22.9
19.3
15.0
13.3
18.8
16.1
(INR) (USDb) FY16 FY17 FY16
Buy
267
23.5 21.8 25.4 8.8
Buy
1,081 41.0 49.1 59.3 22.0
Buy
465
16.7 35.6 41.8 13.1
Neutral
655
18.1 19.2 26.0 34.1
Buy
758
4.8
60.0 75.8 12.6
Buy
922
8.2
41.3 51.3 22.3
Sell
83
0.4
5.4 5.8 15.4
Neutral
55
1.4
4.4 5.6 12.3
Neutral
84
0.6
14.1 17.3 5.9
Buy
21
0.4
2.5 3.1 8.1
115.2
17.5
Buy
243
27.9 25.6 31.7 9.0
Buy
133
3.7
19.6 26.8 6.8
Neutral
134
1.4
19.4 27.1 6.9
Buy
167
1.2
13.3 20.0 12.6
Buy
275
2.1
43.2 60.0 6.4
Buy
163
1.6
35.7 46.6 4.6
Buy
145
0.7
44.2 55.6 3.3
Buy
128
0.9
21.1 30.6 6.0
Neutral
42
0.1
16.5 21.9 2.6
Buy
67
0.6
17.8 22.8 3.7
Neutral
85
2.1
14.4 19.7 5.9
Neutral
43
0.4
8.8 12.5 4.9
42.6
8.0
Under Review 1,206 28.8
35
42 21.7
Buy
468
3.6
34
42 13.8
Buy
213
0.9
26
33
8.1
Buy
705
4.6
56
72 12.7
Buy
251
1.4
7
9
37.0
Buy
692
0.7
24
35 29.3
Buy
55
1.3
10
12
5.7
Buy
239
3.6
63
76
3.8
Buy
232
4.6
54
59
4.3
Buy
933
3.2
62
73 15.1
Buy
226
1.9
12
15 18.7
Buy
5,294
4.3
224 276 23.6
Buy
178
5.4
19
24 11.8
58.8
14.9
FY17 FY16 FY17 FY16
7.0
132 150
1.45
18.2 285 331
3.79
11.1 217 252
2.14
25.2 183 209
3.57
10.0 327 388
2.32
18.0 295 340
3.12
14.3
60
66
1.38
9.8
49
53
1.12
4.8
136 150
0.61
6.7
29
31
0.72
14.7
2.64
7.3
229 255
1.01
5.0
220 244
0.60
5.0
410 432
0.33
8.4
178 193
0.94
4.6
572 618
0.48
3.5
317 356
0.51
2.6
473 515
0.31
4.2
278 301
0.46
1.9
141 158
0.30
2.9
180 196
0.37
4.3
157 173
0.54
3.4
126 136
0.34
6.0
0.69
16.5 165 188
4.63
11.0 182 216
2.57
6.5
179 204
1.19
9.8
275 304
2.57
29.4
24
28
10.63
20.0 151 182
4.58
4.8
107 116
0.25
3.2
302 360
0.79
3.9
285 328
0.82
12.8 457 515
2.04
14.8 109 120
2.07
19.2 1,351 1,582 3.92
9.5
140 156
1.61
12.7
2.56
7 November 2015
9
 Motilal Oswal Financial Services
Union Bank of India
Financials and valuations
Income Statement
Y/E March
Interest Income
Interest Expense
Net Interest Income
Change (%)
Non Interest Income
Net Income
Change (%)
Operating Expenses
Pre Provision Profits
Change (%)
Provisions (excl tax)
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Pref. Dividend (Incl tax)
Profits for Equity SH
Change (%)
Equity Dividend (Incl tax)
Core PPP*
Change (%)
*Core PPP is (NII+Fee income-Opex)
2011
164,526
102,364
62,162
48.3
20,388
82,550
33.9
39,500
43,050
17.6
13,496
29,554
8,735
29.6
20,819
0.3
52
20,768
0.1
4,881
31,996
24.0
2012
210,285
142,354
67,931
9.3
24,482
92,413
11.9
39,875
52,538
22.0
25,410
27,128
9,256
34.1
17,871
-14.2
105
17,766
-14.5
5,128
39,702
24.1
2013
251,247
175,819
75,428
11.0
25,520
100,949
9.2
45,122
55,827
6.3
25,185
30,642
9,063
29.6
21,579
20.7
94
21,485
20.9
5,602
42,216
6.3
2014
293,494
214,701
78,793
4.5
28,215
107,009
6.0
54,828
52,181
-6.5
31,511
20,670
3,708
17.9
16,962
-21.4
100
16,862
-21.5
2,967
37,238
-11.8
2015
320,840
236,401
84,439
7.2
35,230
119,669
11.8
61,434
58,235
11.6
30,401
27,834
10,017
36.0
17,816
5.0
53
17,764
5.3
4,589
38,264
2.8
2016E
333,422
245,894
87,528
3.7
38,424
125,952
5.3
64,023
61,929
6.3
23,622
38,307
13,408
35.0
24,900
39.8
0
24,900
40.2
4,351
40,600
6.1
2017E
363,464
260,797
102,666
17.3
43,315
145,981
15.9
71,557
74,424
20.2
28,044
46,380
15,769
34.0
30,611
22.9
0
30,611
22.9
5,349
50,768
25.0
(INR Million)
2018E
404,381
285,633
118,748
15.7
48,559
167,306
14.6
79,933
87,373
17.4
31,756
55,616
18,910
34.0
36,707
19.9
0
36,707
19.9
6,415
61,422
21.0
Balance Sheet
Y/E March
Share Capital
Equity Share Capital
Preference Share Capital
Reserves & Surplus
Net Worth
Of which Equity Networth
Deposits
Change (%)
of which CASA Dep
Change (%)
Borrowings
Other Liabilities & Prov.
Total Liabilities
Current Assets
Investments
Change (%)
Loans
Change (%)
Fixed Assets
Other Assets
Total Assets
Asset Quality
GNPA (INR m)
NNPA (INR m)
GNPA Ratio
NNPA Ratio
PCR (Excl Tech. write off)
PCR (Incl Tech. Write off)
E: MOSL Estimates
2011
6,353
5,243
1,110
121,292
127,645
126,535
2,024,613
19.1
643,072
19.2
133,160
74,427
2,359,844
200,984
583,991
7.3
1,509,861
26.5
22,928
42,080
2,359,844
36,228
18,034
2.37
1.19
50.2
67.6
2012
6,615
5,505
1,110
139,715
146,331
145,221
2,228,689
10.1
697,051
8.4
179,095
67,999
2,622,114
156,751
623,636
6.8
1,778,821
17.8
23,358
39,549
2,622,114
54,499
30,250
3.02
1.70
44.5
62.2
2013
7,078
5,968
1,110
165,884
172,962
171,852
2,637,616
18.3
816,349
17.1
237,973
72,787
3,121,338
162,104
808,304
29.6
2,081,022
17.0
24,790
45,117
3,121,338
63,138
33,534
2.99
1.61
46.9
65.2
2014
7,413
6,303
1,110
177,341
184,754
183,644
2,976,756
12.9
878,005
7.6
293,166
83,133
3,537,809
230,729
937,232
16.0
2,291,044
10.1
26,085
52,720
3,537,809
95,638
53,403
4.10
2.33
44.2
60.0
2015
6,358
6,358
0
191,251
197,609
197,609
3,168,699
6.4
926,505
5.5
353,600
96,252
3,816,159
223,780
844,617
-9.9
2,556,546
11.6
26,820
164,397
3,816,159
130,310
69,190
4.98
2.71
46.9
59.2
2016E
6,874
6,874
0
221,737
228,611
228,611
3,548,943
12.0
1,008,610
8.9
361,600
97,530
4,236,684
261,895
971,310
15.0
2,812,200
10.0
26,882
164,397
4,236,684
165,378
87,414
5.72
3.11
47.1
58.5
2017E
6,874
6,874
0
246,652
253,526
253,526
4,045,795
14.0
1,148,828
13.9
369,600
115,241
4,784,162
301,491
1,117,006
15.0
3,149,664
12.0
26,944
189,056
4,784,162
186,034
100,713
5.75
3.20
45.9
58.1
(INR Million)
2018E
6,874
6,874
0
276,598
283,472
283,472
4,733,580
17.0
1,308,971
13.9
377,600
136,831
5,531,483
380,392
1,284,557
15.0
3,622,114
15.0
27,006
217,415
5,531,483
(%)
206,122
110,407
5.54
3.05
46.4
59.0
7 November 2015
10
 Motilal Oswal Financial Services
Union Bank of India
Financials and valuations
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield-Earning Assets
Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost-Int. Bear. Liab.
Avg. Cost of Deposits
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Int. Expense/Int.Income
Fee Income/Net Income
Non Int. Inc./Net Income
Efficiency Ratios (%)
Cost/Income*
Empl. Cost/Op. Exps.
Busi. per Empl. (INR m)
NP per Empl. (INR lac)
* ex treasury
Asset-Liability Profile (%)
Loans/Deposit Ratio
CASA Ratio
Investment/Deposit Ratio
G-Sec/Investment Ratio
CAR
Tier 1
2011
8.5
8.9
7.1
5.2
5.1
3.3
3.2
2012
9.2
9.7
7.6
6.2
6.3
3.0
3.0
2013
9.3
9.9
7.9
6.7
6.8
2.7
2.8
2014
9.4
9.9
8.3
7.0
7.1
2.5
2.5
2015
9.5
9.9
8.1
7.0
7.0
2.5
2.5
2016E
9.1
9.1
8.6
6.6
6.7
2.5
2.4
2017E
8.8
8.9
8.1
6.3
6.2
2.6
2.5
2018E
8.6
8.8
7.6
6.0
5.9
2.6
2.5
20.9
1.0
62.2
16.5
24.7
14.8
0.7
67.7
17.9
26.5
15.0
0.7
70.0
17.4
25.3
10.4
0.5
73.2
19.3
26.4
10.1
0.5
73.7
20.9
29.4
12.5
0.6
73.7
22.1
30.5
13.5
0.7
71.8
21.4
29.7
14.4
0.7
70.6
20.8
29.0
50.7
65.8
115.8
7.5
45.3
62.2
122.3
5.8
46.9
61.1
137.2
6.8
53.7
60.3
147.7
5.0
54.6
61.6
154.8
5.0
54.2
60.4
163.3
6.7
52.1
60.1
176.0
7.9
50.6
59.9
194.3
9.2
74.6
31.8
28.8
79.6
13.0
8.7
79.8
31.3
28.0
80.9
11.9
8.4
78.9
31.0
30.6
76.4
11.5
8.2
77.0
29.5
31.5
74.4
10.8
7.5
80.7
29.2
26.7
86.1
10.2
7.5
79.2
28.4
27.4
87.7
10.6
8.0
77.9
28.4
27.6
86.9
10.5
8.0
76.5
27.7
27.1
88.4
10.1
7.9
Valuation
Book Value (INR)
Change (%)
Price-BV (x)
Adjusted BV (INR)
Price-ABV (x)
EPS (INR)
Change (%)
Price-Earnings (x)
Dividend Per Share (INR)
Dividend Yield (%)
E: MOSL Estimates
211.2
21.2
187.1
39.6
-3.6
8.0
235.9
11.7
197.5
32.3
-18.5
8.0
262.9
11.4
0.6
223.6
0.7
36.0
11.6
4.5
8.0
4.9
267.4
1.7
0.6
208.1
0.8
26.8
-25.7
6.1
4.0
2.5
287.6
7.5
0.6
211.4
0.8
27.9
4.4
5.8
6.0
3.7
311.6
8.3
0.5
222.6
0.7
36.2
29.6
4.5
5.4
3.3
348.3
11.8
0.5
245.8
0.7
44.5
22.9
3.7
6.7
4.1
392.4
12.6
0.4
280.0
0.6
53.4
19.9
3.1
8.0
4.9
7 November 2015
11
 Motilal Oswal Financial Services
Union Bank of India
Corporate profile: Union Bank of India
Company description
Exhibit 16: Sensex rebased
270
240
210
180
150
120
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Union Bank (I)
Sensex - Rebased
Union Bank of India is one of the largest PSU banks
established in 1919 with its headquarters in
Mumbai. The bank has established presence in
Central and Western regions of the country. Mr
Arun Tiwari, CMD, has a residual tenure of ~2
years. As of September 2015, the bank had 4,095
branches and 6,909 ATMs. The bank has presence
in 8 overseas territories including 3 full-fledged
branches in DIFC Dubai, Antwerp, and Hong Kong
and 5 representative offices at Abu Dhabi, London,
Beijing, Shanghai and Sydney. Government of India
shareholding in the bank stood at ~63.4%.
Exhibit 17: Shareholding pattern (%)
Sep-15
Promoter
DII
FII
Others
63.4
18.0
8.9
9.7
Jun-15
60.5
19.4
7.9
12.3
Sep-14
60.5
14.6
11.4
13.6
Exhibit 18: Top holders
Holder Name
LIC of India
HDFC Trustee Company Limited A/c HDFC Mid Cap
Government Pension Fund Global
% Holding
10.2
4.3
1.0
Note: FII Includes depository receipts
Exhibit 19: Top management
Name
Arun Tiwari
K Subrahmanyam
K. N. Reghunathan
Mayank Mehta
Mangla R. Prabhu
Designation
Chairman and Managing Director
Executive Director
General Manager
General Manager and CFO
General Manager
Exhibit 20: Directors
Name
Arun Tiwari
Dipankar Chatterji
Gopal Krishan Lath
Ravindrarai Dholakia
*Independent
Name
Sushri Anusuiya Sharma
Shri Kant Misra
K Subrahmanyam
Exhibit 21: Auditors
Name
J Gupta & Co
Jindal & Company
Price Patt & Co
S G C O & Co
Shah Gupta & Co
V Rohtagi & Co
Type
Statutory
Statutory
Statutory
Statutory
Statutory
Statutory
Exhibit 22: MOSL forecast v/s consensus
EPS (INR)
FY16
FY17
FY18
MOSL forecast
36.2
44.5
53.4
Consensus
forecast
33.6
41.0
43.9
Variation (%)
7.6
8.6
21.6
7 November 2015
12
 Motilal Oswal Financial Services
Union Bank of India
NOTES
7 November 2015
13
 Motilal Oswal Financial Services
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