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Thursday, February 9, 2012

Union Bank – Stock Analysis with Target Stock Price

Here is stock analysis based on recent results of Union Bank in 3Q FY12 and target stock price.

The bank has reported NII increase of 7.2% yoy and net profit of Rs.150 crore, which is 74.4% down yoy. Net profit is impacted by one-off NPV (net present value) loss of Rs.380 crore from restructuring of accounts worth Rs.2040 crore.

Net Interest Margin (NIM) improved to 3.31% in 3Q from 3.21% in 1Q as yield on funds improved 37 bps qoq to 9.62% while cost of funds increased 18 bps qoq. Slippages decreased to 1.7% from 5.8% in 2QFY12. GNPA declined to 3.33% FROM 3.49% IN 2QFY12.

CASA deposits ratio improved to 32.5% in 3Q from 32.1% in 2Q and the bank has been reducing high cost deposits. Advances grew at healthy 16.8% yoy and 6.1 % qoq.

As per guidance form management, 16% advance growth for FY12 is expected. GNPA is expected to bring down to 3% by 4QFY12 end.

It is expected that government is going to infuse equity of Rs.270 crore in Union Bank in 4Q. This will improve Tier -1 capital for bank from the current level of 8%.

At current stock price of Rs.238, the stock trades at P/E of 9.38. Dividend yield for stock stands at 3.36% which is very good and makes Union Bank a good dividend yielding stock. The stock has gone from 160 levels to 238 in past 50 days quickly. If it corrects from here to 200 levels which can not be ruled out, it will be a good stock to buy from banking sector for target price of Rs.255 in medium term.

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