Union Bank Of India - Research Report


Private Client Research




Bank - Public


Union Bank Of India

Reco Price
Rs. 141.00
Price Target (1.5 - 2 Years)
Rs. 282.00


July 18, 2016
CNX Nifty




Cheap valuation along with government thrust will drive the future growth.

Subdued loan growth, healthy growth in granular segments:
The bank’s focus on the granular business continued. While overall loans grew by a mere 6%, retail grew by (16/5% YoY/QoQ) and agriculture by (23/6% YoY/QoQ). Surprisingly, MSME too grew (3/15% QoQ/YoY). The bank’s granular loan proportion inched up to 47% vs. 46% QoQ and 45% YoY. As the management continues to lay major thrust on growing the retail, agriculture and MSME book, increasing the RAM (retail, agriculture, MSME) book share which currently forms 52% of the total loan book, we expect a decent 13-14% loan CAGR over FY16-18E. Home loans and mortgages continue to drive the retail loan traction for Union Bank of India.

Improved Management Focus:
The key focus areas for the management are: (a) to consolidate loan book (+5% YoY), (b) focus on profitability, (c) focus on HR issues and (d) conserve capital. Focus on higher yielding Agriculture and MSME segments; gradual improvement in CASA, granular liability profile (bulk deposits at 2%) will reduce pressure on margins in the falling interest rate environment. Moderate balance sheet growth will keep the CASA ratio intact which in turn will cushion margins. Current CASA is at 32% which is expected to improve to 35% in the next one year.

New RBI Governor Expectations:
With the first quarter of FY2017 over, the hope for a rate cut may have died down, but if there is no sign of an uptick in loan growth or private investment over the next couple of quarters, there is bound to be greater pressure on the government and the RBI too. For the RBI, as in the past, a failure to create enough jobs on the part of the government or stimulate demand may lead to the blame being shifted to the central bank for its interest rate policy. Hence there will be an added pressure on the new governor to reduce interest rates, expecting other factors to remain favorable. This will help Union Bank to improve its loan book once the rates start coming down.

Government Support:
The Government is likely to announce PSU bank capital infusion very shortly .Out of the total budget of Rs 25000 crore, about Rs 12000 - Rs 15000 crores is expected to use in the first tranche of the process. The move indicates the government's confidence and support in helping NPA trapped PSU banks to get back on their feet. The initiative will also help the PSB's meet Basel III norms and maintain capital adequacy ratio above minimum threshold levels.

NII moderate; sequential NIMs expand:
Net Interest Income (NII) stood moderate, declining 1.7% YoY, but up 4.4% QoQ. That’s primarily on the back of tepid loan growth that reported a mere 6% YoY growth during the quarter. Global Net Interest Margins (NIMs) stood at 2.29%, up 7 bps QoQ and domestic NIMs at 2.46%, up 15 bps QoQ aided the sequential 4.4% growth in NII. Shedding high cost deposits also aided the sequential expansion in margins for the quarter; bulky deposits as % of overall deposits witnessed fell to 2.1% as at the end of March 2016 from 3.0% a year ago. Going forward, the bank’s NII should hold in a good stead, clocking 15% CAGR over FY16-18E; NIMs on the other hand, should stabilize at 2.4% levels as the weak asset quality overhang continues.

Value play:
While the elevated credit costs and higher slippages marred Union Bank’s earnings during Q4FY16, the book clean-up has consumed capital too. With management’s greater focus on capital augmentation, CASA mobilization and on growing higher yielding retail book, we believe the balance sheet growth stands in a good stead ahead with RoEs set to improve. Also at the current market price, the stock is trading at a Price/Adjusted Book Value of 0.47x on a trailing twelve month basis which is a very reasonable valuation for such a bank. If you compare this value to its larger peers, you can see that they are trading at a Price/Adjusted Book Value of more than 1x. Hence it’s trading at a steep discount.

Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
222.70 - 104.00
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

Union Bank Of IndiaSensex
Union Bank Of India
Return (%)


(in %)

+91 22 6639 3000



As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalized and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.

Indian banking industry has recently witnessed the roll out of innovative banking models like payments and small finance banks. The Central Bank granted in-principle approval to 11 payments banks and 10 small finance banks in FY 2015-16.RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.

The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. Public-sector banks control nearly 80%of the market thereby leaving a comparatively smaller share for its private peers. Banks are also encouraging their customers to manage their finances using mobile phones. The value of mobile banking transactions in December 2015 increased four times YoY and jumped by 46% over the previous month’s value to Rs. 49029 crores, as per data from the RBI.


Union Bank of India is an India-based bank engaged in providing banking and financial services to its customers. The Bank offers products and services in three categories: Deposits, Loans and Advances, and Remittances and Collections. Its segments include Treasury operations, Corporate and Wholesale Banking, Retail Banking operations and Other Banking operations. The treasury division is engaged in domestic treasury operations, forex operations, fixed income, derivative products, equity and other alternate asset classes. The Bank offers Internet banking, mobile banking and cash management services. The Bank offers its products and services for micro, small and medium enterprises (MSMEs). The Bank offers retail loans schemes for home loans, auto loans, educational loans and others. The Bank also offers various types of deposits, such as current, savings and term deposits. The Bank has a branch network of over 4200 branches across the county and approximately four branches abroad.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Mar 14
Mar 15
Mar 16
Mar 17E
Mar 18E
  • Interest Earned
  • Other Income
  • Total Income
  • Growth (%)
  • Interest Expended
  • Operating Expenses
  • Total Expenditure
  • Operating Profit before Prov.& Cont.
  • Exceptional Items
  • Provisions and Contingencies
  • PBT
  • Tax
  • Profit after Tax
  • Diluted EPS
  • 29393.53
  • 3140.73
  • 32534.26
  • -
  • 21466.72
  • 5876.08
  • 5876.08
  • 5191.46
  • 0.00
  • 3149.21
  • 2042.25
  • 372.69
  • 1669.56
  • 27.56
  • 32164.28
  • 3957.12
  • 36121.40
  • 11.03
  • 23639.55
  • 6683.27
  • 6683.27
  • 5798.58
  • 0.00
  • 3041.12
  • 2757.46
  • 1000.00
  • 1757.46
  • 27.67
  • 32315.67
  • 3934.43
  • 36250.10
  • 0.36
  • 23894.04
  • 6636.52
  • 6636.52
  • 5719.54
  • -79.40
  • 3882.17
  • 1757.97
  • 415.08
  • 1342.89
  • 20.50
  • 34050.00
  • 4000.00
  • 38050.00
  • 4.97
  • 24601.00
  • 7205.00
  • 31806.00
  • 6244.00
  • 0.00
  • 3950.00
  • 2294.00
  • 573.5
  • 1720.50
  • 26.26
  • 37200.50
  • 4000.00
  • 41200.50
  • 8.28
  • 26665.00
  • 7950.00
  • 34615.00
  • 6585.50
  • 0.00
  • 4026.00
  • 2559.50
  • 639.875
  • 1919.63
  • 29.30
Source: Stockaxis Research, Company Data


We believe that the stress in the overall system is not yet completely over and will remain a pressure point for earnings in the near term. However, we recommend a BUY for the stock considering a long term perspective, with an expectation of support from the GoI to PSU banks as and when needed. The stock is trading at a cheaper valuation in terms of P/ABV which is currently at 0.60x FY 2018E considering Adjusted Book Value of Rs 236.

We consider a valuation of 1.07x FY2018E in terms of P/ABV which is a fair multiple that Union Bank of India can have in a relatively better business environment. Hence we recommend a BUY for Union Bank of India with price target of Rs 282 with a long term horizon.



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