Union Bank of India (UBI) - Brokerage research report

Research report from centrum brokerge house with stock target price.

Reco price: Rs 150
Current market price: Rs 166.95
Target price: Rs190
Brokerage: Centrum Broking

Union Bank of India (UBI) plans to add another 400-500 branches, which would help it to scale up its low-cost CASA deposit base to about 35.4 per cent in FY10E. Considering the prevailing economic slowdown and qualitative growth taking centre-stage, the brokerage expects the credit growth to taper to 21 per cent in FY09E and 16.5 per cent in FY10E (credit growth of 26.2 per cent in H1 FY09). Higher provision coverage ratios in excess of 90 per cent and lower net NPA ratio at 0.14 per cent would keep it on strong footing in terms of asset quality. The provision coverage ratio is expected to be in the range of 85-90 per cent during FY08-10E, which would help contain net NPAs at lower levels of 0.3 per cent in FY10E.

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The bank’s return on equity would be in excess of 20 per cent over FY08-10E, although return on asset is expected to slip to 1 per cent in FY09E (v/s 1.2 per cent during FY08). PAT has grown 43 per cent CAGR over FY06-08, but would register 9.4 per cent CAGR over FY08-10E. The stock price has corrected by about 40 per cent from its peak and is currently available at 0.9x FY10E adjusted BV and a P/E of 4.6x FY10E EPS.
Maintain Buy for investing.

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