Domestic brokerage firm Systematix Institutional Equities has raised its target price on Union Bank of India to ₹215 per share while maintaining its ‘buy’ rating on the stock, after the state-owned bank reported results that exceeded brokerage estimates.“We value the standalone bank at 1.1 times its FY28E adjusted book value per share of ₹196, based on a return on equity (RoE) profile of 16.2%, 15.8%, and 15.8% for FY27E, FY28E, and FY29E, respectively.
Further, we assign a value of ₹4.3 per share to its subsidiaries,” the brokerage said. Beat estimates in Q2Systematix Institutional Equities said Union Bank of India reported a standalone net profit of ₹5,540 crore in Q2FY27, 5.3% above its estimate, marking a 3.8% quarter-on-quarter and 30.3% year-on-year increase.
The growth was primarily driven by lower provisioning costs, which declined 28.5% sequentially and 49.8% annually, along with an improvement in net interest margin (NIM). NIM expanded by 6 basis points quarter-on-quarter and 19 basis points year-on-year to 2.86%.
Global gross advances grew 18.5% year-on-year, led by 22.4% growth in MSME advances, while deposits increased 6.9%. The slippage ratio improved by 12 basis points sequentially and 21 basis points annually to 0.7%. Asset quality also strengthened, with the gross non-performing asset (GNPA) ratio declining by 23 basis points quarter-on-quarter and 87 basis points year-on-year to 2.42%, while the net non-performing asset (NNPA) ratio fell by 5 basis points sequentially and 13 basis points annually to 0.42%.
The bank's return on assets (RoA) improved to 1.38%, while return on equity (RoE) stood at 17.2%. Going forward, the management continues to prioritise current account and savings account (CASA) deposits and retail term deposits, focusing on improving average balances and maintaining a stable funding profile.
The management also expects the ongoing interest rate hike cycle to support further NIM expansion. It clarified that the total additional provisioning required for the expected credit loss (ECL) transition is around ₹5,500 crore, equivalent to 70 basis points of Common Equity Tier 1 (CET1) capital, and not ₹11,300 crore.
Shares surge 300% in five yearsThe shares have maintained a strong winning run in recent years, extending their gains by closing each of the last four calendar years in positive territory. From their 2020 low of ₹22.65, the shares have surged nearly 700% to trade at ₹180.70 apiece.
In terms of cumulative performance, the shares have gained 76% over the past three years and 300% over the past five years. Despite this stellar performance, the stock still trades around 60% below its record peak of ₹427, touched in 2010. Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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