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Union Bank of India 4QFY2014 performance highlights and results update

May 29, 2014, Thursday, 06:26 GMT | 02:26 EST | 10:56 IST | 13:26 SGT
Contributed by Angel Broking

Union Bank of India (UNBK) reported a weak operating performance for 4QFY2014, with an operating profit de-growth of 21.7% yoy. The key highlights from the results are muted NII growth of 3.7% (considering an advance growth of 10.1% yoy), margin increase of 5bp qoq, and continued pressure on the asset quality front, as stressed assets addition remained at elevated levels of Rs.2,530cr for the quarter (Rs.2,158cr in 3QFY2014 and Rs.2,275cr in 4QFY2013).

Business growth moderates; Asset quality witnesses moderate pressures: During 4QFY2014, the bank’s business grew at moderate pace, with deposits growing at 12.9% yoy while advances grew moderate at 10.1% yoy. Within advances, MSME, Agri, and Retail advances continued to witness robust traction, registering a growth of 30.9%, 26.7% and 27.1% yoy respectively. Going ahead, the Management expects 10-12% credit growth for FY2015. CASA deposits grew at a moderate pace of 7.6% yoy, while CASA ratio declined by 145bp yoy to 29.5% (up 70bp qoq). The Reported NIMs for the bank increased 5bp qoq to 2.6% as cost of funds decreased 11bp qoq to 6.6%. The bank registered a moderate performance on the non-interest income (excl. treasury) front, with a growth of 7.9% yoy, largely aided by healthy growth in CEB by 19.9% yoy to Rs.519cr. The overall other income de-grew by 11.6% yoy to Rs.774cr. On the asset quality front Slippages came in at Rs.1,200cr (annualized slippage rate of 2.3%), compared to Rs.1,154cr (annualized slippage rate of 2.2%). Sale of assets to ARCs stood at Rs.300cr during the quarter. Elevated slippages while lower recoveries/upgrades and write-offs resulted in a 9.0% qoq increase in Gross NPA levels. The PCR for the bank declined by 532bp yoy to 59.9% (largely flat qoq). Gross and net NPA ratios increased sequentially by 23bp and 7bp, respectively to 4.1% and 2.3%. The bank restructured advances worth Rs.1,330cr during the quarter (as against Rs.1,004cr in 3QFY2014). The Management has guided for a total restructuring pipeline of around Rs.1,700cr for 1QFY2015.

Outlook and valuation: UNBK has witnessed continued asset quality pressures for several quarters over the last few years, which has severely impacted its profitability. RoE for the bank has declined significantly from 20.9% in FY2011 to 10.0% as of FY2014, impacted by higher credit costs and lower margins. Its Tier I CAR is also relatively low at 7.5% (CET-1 at 7.2%). However at CMP stock trades at relatively cheap valuations of 0.7x FY2016E ABV which is at lower end compared to its peers, thereby providing upside potential to the stock. We maintain our Buy rating on the stock.