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MOSL: UNION BANK OF INDIA (Buy)-Operating performance showing recovery signs

UNION BANK OF INDIA: Operating performance showing recovery signs

(UNBK IN, Mkt Cap USD3.5b, CMP INR38, TP INR55, 45% Upside, Buy)

 

• Slippages remain elevated; higher PCR/recovery outlook provides comfort
• UNBK reported healthy operating performance, supported by higher other income and improving margin trajectory, despite sluggish business growth. Domestic NIM expanded by 71bp QoQ to 3.11%.
• Slippages stood elevated (~4.8% annualized), led by higher slippages in the MSME and two large corporate accounts slipping in 1QFY22. However, higher write-offs and upgradations aided stable asset quality on a sequential basis.
• SMA-2 overdue stood at 3.7% of loans, and restructured book stood at 2.7% of net loans. We conservatively estimate RoA/RoE of 0.6%/11.4% by FY23E. We resume coverage with a Buy rating.

 

Improving earnings traction; slippages stay elevated, with PCR healthy ~69%

• UNBK reported a PAT of INR11.8b (+255% YoY), supported by higher treasury gains of INR11.1b and recovery from written of account of INR3.3b, even as total provisions stood elevated ~INR35b.
• NII grew 9.5% YoY (+30% QoQ) to INR70.1b, while domestic NIM improved by 71bp QoQ to 3.11%.
• Core fee income grew 41% YoY, supported by a benign base, but fell 30% QoQ, impacted by low business volumes. Other income grew 98% YoY (fell 36% QoQ) to ~INR29b, led by higher treasury gains (INR11.1b) and recovery from written off assets (INR3.3b).
• Opex grew ~20% YoY to ~INR46.1b. PPOP grew strongly at 31% YoY to INR53b. C/I ratio improved by ~150bp QoQ to 46.5%.