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November 2, 2011
BUY
CMP Target Price
% chg (qoq) 9.6 7.9 (5.8) 2QFY11 526 355 110 % chg (yoy) 18.5 27.0 13.7
`71 `82
12 months
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
For 2QFY2012, United Bank registered 13.7% yoy growth in its net profit to `125cr, above our estimates due to higher non-interest income than estimated by us. We recommend a Buy rating on the stock.
Chunky slippages witnessed during 2QFY2012; NIM improves sequentially: For 2QFY2012, the banks advances grew by 3.2% qoq to `54,304cr, while deposits declined by 1.5% qoq to `78,244cr. Savings deposit growth grew by 2.4% qoq; however, current deposits declined by 5.8% qoq, leading to a dip of 37bp in CASA ratio to 39.9% (40.2% as of 1QFY2012). During the quarter, with rising cost of deposits for the system as a whole, the banks cost of deposits increased by 25bp qoq to 6.6%. However, the bank was able to increase its yield on advances by 54bp qoq, leading to a sequential expansion of 14bp in reported NIM. Non-interest income declined by 4.6% qoq (up 6.9% yoy) to `162cr, mainly due to a sequential 29.0% decline in treasury income to `47cr. Income from recoveries was also poor, declining by 19.1% qoq to `16cr. The bank switched over accounts worth `5lakhs and below to system-based NPA recognition in 2QFY2012. Management indicated that the switchover did not have any material impact on the asset quality and higher slippages witnessed during the quarter were due to three large corporate accounts (~`314cr out of total `621cr slippages), which became non-performing during 2QFY2012. Consequently, gross NPA ratio and net NPA ratio deteriorated to 3.5% and 2.2% in 2QFY2012 from 2.9% and 1.7% in 1QFY2012, respectively. Outlook and valuation: UBI has a favorable deposit franchise, as reflected in its strong CASA ratio of 39.9% as of 2QFY2012. At the CMP, the stock is trading at P/ABV multiple of 0.6x FY2013E P/ABV. We have assigned a target FY2013E P/ABV multiple of 0.7x and, hence, we recommend a Buy rating on the stock with a target price of `82.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 85.5 2.2 1.1 11.3
3m (3.6) (22.5)
3yr 78.4 -
Key financials
Y/E March (` cr) NII % chg Net profit available to eq. shareholders % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research
FY2010 1,391 19.8 305 166.1 2.1 9.6 7.4 0.8 0.5 11.6
FY2011 2,169 55.9 457 49.7 2.7 13.3 5.4 0.7 0.6 14.1
FY2012E 2,493 14.9 517 13.1 2.7 15.0 4.7 0.6 0.6 13.7
FY2013E 2,785 11.7 588 13.7 2.7 17.1 4.2 0.6 0.6 14.1
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Shrinivas Bhutda
022 3935 7800 Ext: 6845 shrinivas.bhutda@angelbroking.com
Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com
2QFY12 1QFY12 % chg (qoq) 2QFY11 % chg (yoy) 1,940 1,467 463 5 5 1,316 624 162 115 44 47 16 55 786 335 217 118 450 260 137 122 191 66 125
34.6
1,838 1,394 443 2 1,269 569 170 103 45 67 20 38 739 322 215 107 417 218 118 100 199 67 132
33.6
5.5 5.2 4.6 191.1 3.7 9.6 (4.6) 11.1 (3.5) (29.0) (19.1) 44.2 6.3 4.2 1.3 10.1 7.9 19.2 16.4 22.5 (4.4) (1.5) (5.8)
100bp
1,506 1,094 412 0 980 526 152 100 43 51 17 40 678 323 211 112 355 218 170 48 137 27 110
19.7
28.8 34.1 12.6 1,244.1 34.3 18.5 6.9 14.3 1.1 (7.7) (7.1) 37.8 15.9 3.7 3.0 4.9 27.0 19.2 (19.3) 156.1 39.5 144.4 13.7
1485bp
- Other Provisions
PBT Provision for Tax PAT Effective Tax Rate (%) Source: Company, Angel Research
% chg 9.5 33.2 13.7 (5.9) 34.5 45.9 21.4 40.0 13.5
November 2, 2011
2QFY12 1QFY12 %chg (qoq) 2QFY11 54,304 78,244 69.4 6,513 24,693 31,206 39.9 13.0 8.9 6.6 11.7 7.8 3.2 42.7 1,908 3.5 1,202 2.2 65.0 4.6 0.6 52,607 77,104 68.2 6,914 24,120 31,034 40.2 13.2 9.1 6.4 11.2 7.8 3.0 43.5 1,535 2.9 878 1.7 70.2 2.9 0.5 3.2 1.5 117bp (5.8) 2.4 0.6 (37)bp (28)bp (17)bp 25bp 54bp 2bp 14bp (85)bp 24.3 59bp 36.9 54bp (524)bp 171bp 8bp 46,277 69,046 67.0 5,578 21,834 27,412 39.7 12.7 8.4 5.6 9.9 7.8 3.1 47.7 1,460 3.1 729 1.6 71.8 1.9 0.9
%chg (yoy) 17.3 13.3 238bp 16.8 13.1 13.8 18bp 21bp 53bp 106bp 180bp 3bp 11bp (503)bp 30.7 36bp 64.8 63bp (677)bp 272bp (26)bp
November 2, 2011
67.0
3.7 3.5
9.5 5.9
5.6 6.5
3.2 1.5
66.0
39.7
40.2
40.8
40.2
(1.7) (1.0)
64.0
39.0
income
draws
non-interest
income
39.9
39.5
down
Non-interest income declined by 4.6% qoq (up 6.9% yoy) to `162cr, mainly due to a sequential 29.0% decline in treasury income to `47cr. Income from recoveries was also poor, declining by 19.1% qoq to `16cr. Commission and brokerage income was sluggish during 2QFY2012, declining by 3.5% qoq to `44cr.
November 2, 2011
The bank switched over accounts worth `5lakhs and below to system-based NPA recognition in 2QFY2012. Management indicated that the switchover did not have any material impact on the asset quality and higher slippages witnessed during the quarter were due to three large corporate accounts (~`314cr out of total `621cr slippages), which became non-performing during 2QFY2012. The banks exposure to the power sector as of 2QFY2012 stands at `5,700cr (10.5% of overall advances), ~85% of which is towards private sector lending. The remaining (`845cr) is distributed between the West Bengal and Rajasthan state electricity boards.
3.1 1.6
2.9 1.5
2.5 1.4
2.9 1.7
3.5 2.2
1.9
1.9
3.2
2.9
4.6
1.0 -
0.2 -
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
50.6
45.9
47.7
45.2
46.5
44.0
1.5 1.4
November 2, 2011
Investment arguments
Structurally strong CASA than peers.
UBI has historically had a strong CASA ratio. The banks average CASA ratio during FY200510 has been 41.6%. Even during 2QFY2011, the bank had maintained a strong CASA ratio of ~40%, which is the highest in its peer group, which consists of banks such as UCO Bank (26.3%), Allahabad Bank (30.6%), Dena Bank (35.6%) and Syndicate Bank (30.5%). Of the total CASA deposits, saving deposits, which are less volatile, accounted for 31.6% of the total deposits, while current deposits accounted for 8.3%. This high proportion of CASA deposits is mainly because of a large retail customer base spread across the eastern and northeastern regions. Of the total branch network of 1,633, 81% is concentrated in the eastern and northeastern regions. Moreover, 59% of UBIs branches are located in rural and semi-urban areas, giving the bank an access to low-cost deposits.
November 2, 2011
Investment concern
Lower other income compared to peers
During FY2011, other income excluding treasury grew moderately by 16% yoy despite 26.4% yoy growth in overall advances and 35.4% yoy rise in retail advances. Other income excluding treasury as a percentage of average assets remained stable at 0.53% in FY2011 (0.54% in FY2010), which is on the lower side. Even after factoring in a 14% CAGR over FY201113E in other income excluding treasury and taking into account revision in fee charges during 1QFY2012, the proportion of other income excluding treasury to average assets is expected to remain relatively low at 0.53% by FY2013E.
Earlier estimates FY2012 16.0 15.0 40.2 2.5 (9.1) 13.0 10.0 2.2 FY2013 20.0 15.0 39.7 2.4 15.1 15.0 15.0 2.2
Revised estimates FY2012 17.0 11.0 41.7 2.7 (2.6) 11.0 5.0 2.8 FY2013 17.0 16.0 40.8 2.7 3.2 15.0 15.0 2.8
FY2013 Var. (%) 7.6 7.2 7.5 (2.8) 17.9 33.7 5.5 5.5 5.5 Earlier Revised estimates estimates 2,554 2,785 666 3,220 1,672 1,548 587 961 312 649 641 3,426 1,625 1,801 813 987 320 667 Var. (%) 9.1 (3.9) 6.4 (2.8) 16.3 38.5 2.7 2.7 2.7
Earlier Revised estimates estimates 2,317 2,493 579 2,896 1,454 1,442 635 807 242 565 621 3,114 1,413 1,701 850 851 255 596
November 2, 2011
Jul-10
Mar-10
Mar-11
Jul-11
Nov-10
November 2, 2011
Nov-11
Mar-12
Reco. Buy Accumulate Neutral Buy Neutral Buy Accumulate Neutral Accumulate Accumulate Accumulate Accumulate Neutral Buy Neutral Neutral Neutral Accumulate Neutral Accumulate Accumulate Buy Buy Neutral Accumulate Buy Neutral
CMP (`) 1,128 412 483 887 23 308 161 118 800 333 50 482 101 428 82 115 215 100 823 286 979 1,909 107 74 225 71 60
Tgt. price (`) 1,414 444 1,114 355 169 881 362 55 510 498 107 301 1,106 2,239 123 238 82 -
Upside (%) 25.4 7.9 25.6 15.4 5.2 10.1 8.7 10.9 5.9 16.3 7.3 5.3 13.0 17.3 15.3 5.8 15.2 -
FY2013E P/ABV (x) 1.8 1.1 3.3 1.6 1.1 1.9 0.7 0.8 1.1 0.9 0.7 0.9 0.7 0.7 0.6 0.7 0.9 0.6 0.9 0.7 1.1 1.4 0.7 0.9 0.9 0.6 0.8
FY2013E Tgt P/ABV (x) 2.3 1.2 2.0 2.3 0.8 1.2 1.0 0.7 1.0 0.8 0.7 0.7 1.3 1.7 0.8 0.9 0.7 -
FY2013E P/E (x) 9.9 8.4 16.8 13.0 6.8 10.2 4.3 5.3 5.7 5.5 4.3 5.6 5.2 4.4 3.9 5.4 5.5 4.0 5.2 5.0 5.8 7.3 4.7 4.4 5.1 4.2 7.3
FY2011-13E EPS CAGR (%) 17.7 19.5 30.5 23.3 15.6 19.9 12.2 (0.9) 14.2 15.2 38.1 (3.0) (16.1) 1.5 7.5 12.3 0.2 20.0 12.0 5.1 9.9 41.4 11.8 15.9 5.2 13.4 (3.2)
FY2013E RoA (%) 1.5 1.2 1.7 1.4 1.0 1.3 1.0 0.9 1.2 0.7 0.6 0.9 0.5 0.8 0.8 0.7 1.1 0.6 1.3 0.8 1.1 1.0 0.7 0.7 0.8 0.6 0.4
FY2013E RoE (%) 20.0 14.0 20.9 15.4 18.2 20.8 18.4 15.8 20.7 17.1 16.5 17.2 13.9 16.6 16.4 14.0 17.4 15.9 17.8 14.1 20.6 21.9 16.3 16.7 17.0 14.1 10.5
IndBk
Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF
November 2, 2011
Income statement
Y/E March (` cr) NII - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) Preference Dividend PAT for Eqty.SH - YoY Growth (%) FY07 1,150 13.7 348 (22.1) 1,498 2.8 778 (4.3) 719 11.7 415 13.9 304 8.8 37 12.1 267 30.7 267 30.7 FY08 905 (21.3) 466 33.9 1,370 (8.5) 903 16.0 467 (35.1) 288 (30.7) 179 (41.1) 34 19.1 145 (45.7) 145 (45.7) FY09 1,162 28.4 491 5.5 1,652 20.6 1,045 15.7 607 30.0 431 49.7 176 (1.6) 62 35.0 115 (20.9) 115 (20.9) FY10 1,391 19.8 559 13.8 1,950 18.0 1,074 2.8 876 44.2 465 8.0 411 132.6 88 21.5 322 181.0 17 305 166.1 FY11 2,169 55.9 637 14.0 2,806 43.9 1,299 21.0 1,507 72.1 838 80.1 669 63.0 145 21.7 524 62.5 67 457 49.7 FY12E 2,493 14.9 621 (2.6) 3,114 11.0 1,413 8.8 1,701 12.9 850 1.4 851 27.3 255 30.0 596 13.7 79 517 13.1 FY13E 2,785 11.7 641 3.2 3,426 10.0 1,625 15.0 1,801 5.9 813 (4.3) 987 16.0 320 32.4 667 11.9 79 588 13.7
Balance sheet
Y/E March (` cr) Share Capital Equity Preference Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab & Prov. Total Liabilities Cash balances Bank balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY07 1,532 1,532 883 37,167 27.1 400 700 1,628 42,310 2,686 1,599 14,602 22,156 42.7 605 661 42,310 27.3 FY08 1,532 1,532 1,129 26.4 1,162 1,275 2,242 5,249 623 FY09 1,782 1,532 250 1,295 16.1 457 1,525 2,436 4,532 1,878 FY10 866 316 550 3,037 68,180 25.0 915 1,525 2,481 77,005 4,707 1,671 26,068 42,330 19.6 651 1,578 77,005 24.1 FY11 1,144 344 800 3,877 77,845 14.2 2,887 1,525 2,763 90,041 5,943 1,385 26,259 53,502 26.4 819 2,133 90,041 16.9 FY12E 1,144 344 800 4,274 86,408 11.0 2,998 1,784 3,336 99,945 5,617 1,999 26,483 62,598 17.0 882 2,367 99,945 11.0 FY13E 1,144 344 800 4,722 100,233 16.0 3,468 2,088 3,947 115,602 6,515 2,312 29,808 73,239 17.0 989 2,738 115,602 15.7
46,971 54,536
54,311 62,031
18,515 17,924 27,858 35,394 25.7 623 1,443 28.4 27.0 624 1,679 14.2
54,311 62,031
November 2, 2011
10
Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov. /Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS (75% cover.) DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA 3.0 1.1 1.9 0.1 2.1 0.8 2.9 2.1 0.8 0.1 0.7 0.7 21.0 14.8 1.9 0.6 1.3 0.4 1.6 0.6 2.2 1.9 0.4 0.1 0.3 0.3 23.7 7.1 2.0 0.7 1.3 0.4 1.6 0.5 2.1 1.8 0.3 0.1 0.2 0.2 25.7 5.1 2.0 0.7 1.3 0.3 1.6 0.5 2.1 1.5 0.6 0.1 0.5 0.0 0.4 26.4 11.6 2.6 1.0 1.6 0.2 1.8 0.5 2.4 1.6 0.8 0.2 0.6 0.1 0.5 25.8 14.1 2.6 0.9 1.7 0.1 1.9 0.5 2.4 1.5 0.9 0.3 0.6 0.1 0.5 25.3 13.7 2.6 0.8 1.8 0.1 1.9 0.5 2.4 1.5 0.9 0.3 0.6 0.1 0.5 25.8 14.1 40.7 6.1 0.4 75.0 5.3 0.4 94.9 5.2 7.4 0.8 2.8 5.4 0.7 3.1 4.7 0.6 4.2 4.2 0.6 4.9 1.7 11.6 0.3 0.9 13.4 0.3 0.7 13.6 0.0 9.6 2.0 13.3 2.2 15.0 3.0 17.1 3.5 86.3 101.2 109.6 121.3 3.6 1.5 2.6 0.6 59.2 2.7 1.1 1.4 0.5 59.8 2.8 1.5 2.9 0.3 48.5 3.2 1.8 2.7 0.4 43.3 2.5 1.4 2.3 0.5 44.1 3.8 1.8 2.8 0.7 55.1 4.7 1.9 2.8 0.6 60.6 42.0 59.6 12.0 7.7 38.6 59.3 11.2 6.4 37.8 64.9 12.4 7.0 38.1 62.1 12.0 7.7 40.8 68.7 12.2 8.3 41.7 72.4 12.1 8.1 40.8 73.1 11.6 7.6 3.1 52.0 0.7 14.8 1.9 65.9 0.3 7.1 2.1 63.3 0.2 5.1 2.1 55.1 0.5 11.6 2.7 46.3 0.6 14.1 2.7 45.4 0.6 13.7 2.7 47.4 0.6 14.1 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
Preference Dividend
ROA after Pref Div Leverage RoE
November 2, 2011
11
E-mail: research@angelbroking.com
Website: www.angelbroking.com
DISCLAIMER
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
November 2, 2011
12