Union Bank of India
BSE SENSEX
33,686
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
10,453
UNBK IN
Loss
led by muted PPoP growth and high provisions
687
UNBK reported a loss of INR15.3b. PPoP growth of -6%/+7% QoQ/YoY was
114.6 / 1.7
nullified by elevated provisions of INR35.5b (119% YoY). Provisions included
205 / 116
INR327m of additional provisions towards standard accounts in telecom and
30/-20/4
power sector; however, NPA provisions also remained elevated at INR34.6b,
740
owing to historically high write-offs of INR11.1b.
34.6
NII growth was muted at 3%/2% QoQ/YoY, impacted by INR738m of interest
4 November 2017
2QFY18 Results Update | Sector: Financials
CMP: INR173 TP: INR175(+1%)
Neutral
Financials & Valuations (INR b)
Y/E March
2018E 2019E
NII
95.1
103
OP
73.2
77.9
NP
-9.8
4.3
EPS (INR)
-13.5
6.0
EPS Gr. (%)
-267.3 -144.1
BV/Sh. (INR)
283.4
289
RoE (%)
-4.7
2.1
RoA (%)
-0.2
0.1
P/E(X)
-12.8
29.1
P/BV (X)
0.61
0.60
2020E
119
90.4
14.2
19.5
227.3
306
6.6
0.2
8.9
0.57
reversals on SDR/S4A accounts. Domestic/Global NIM came in at
2.19%/2.08% (2.20%/2.06% in 1QFY18). Trading gains of INR4.8b (37% of
other income) led to 7% growth in other income.
Gross slippages moderated to INR26.9b (4.1% slippage ratio) vs INR44.5b
last quarter, while recoveries and upgrades were subdued at INR5.8b,
leading to net slippage ratio of 3.03% (5.8% in 1Q). Total pool of NSL (NNPL +
OSRL + other stressed loans) increased to INR353.8b (12.2% of advances) on
a sluggish loan book. Agri slippages moderated to INR4.2b (INR6.9b in 1Q). 5
large accounts contributed INR10b (of which 2 were steel accounts and 1
construction account)
Other highlights:
(1) RAM portfolio grew 9% YoY, led by 19% growth in retail
(2) CASA deposits grew 14% YoY, led by 19% growth in SA deposits. Avg.
daily CASA ratio improved marginally QoQ to 34.1%.
Valuation and view:
Balance sheet recalibration is evident from stronger
focus on RAM portfolio. However, ageing of the NPL portfolio and continued
elevated slippages and credit costs will pressurize earnings. Resultantly, we
expect RoA/RoE to remain sub-optimal at 0.3/6% for FY19. We cut earnings
sharply for FY18/19E to factor in pressure on NIMs and higher credit costs.
Maintain
Neutral
with a TP of INR175 (0.6x Sept 19 BV) view of prolonged
pressure on profitability.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540
| Anirvan Sarkar
(Anirvan.Sarkar@MotilalOswal.com); +91 22 3982 5505
Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 3980 4393 |
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.