Recommendation: Buy
Price target: Rs 150
Current market price: Rs 125
Strong operating performance: Result highlights
- The net interest income (NII) of Union Bank of India (UBI) grew by a strong 20.7% year on year (yoy) on the back of a 35% growth in its advances. However the net interest margin (NIM) was down by 11 basis points.
- The bank's core operating profit grew by a strong 21.2% as the operating expenses were kept under control during the quarter.
- The bank's Q3FY2006 results are not strictly comparable with that of Q3FY2005 due to a provisioning done in that quarter on account of the transfer of securities from the available for sale (AFS) and held for trading (HFT) portfolios to the held till maturity (HTM) portfolio.
- At the current market price of Rs125, UBI is quoting at 5.0x its FY2007E earnings per share (EPS) and 0.9x its FY2007E book value. The bank is expected to generate an average return on equity (RoE) of 21.2% over FY2005-07E despite a 10% dilution. We reiterate our Buy recommendation on the stock with a price target of Rs150.
