Recommendation: Buy
CMP = Rs 125
Price target: Rs 150
- 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.
- I reiterate Buy recommendation on the stock with a price target of Rs150.
UTI Bank
Recommendation: BuyCMP = Rs 323
Price target: Rs 360
- UTI Bank reported a 30.2% year-on-year (y-o-y) growth in its net profit for Q3FY2006 to Rs131.7 crore. The growth was ahead of our expectations.
The net profit growth came on the back of a 53.7% y-o-y growth in the net interest income (NII) and a 24% y-o-y growth in the fee income. - The bank's advances grew strongly by 48.5% year on year (yoy) in Q3FY2006; its deposits too grew by 60.5% yoy during the same period.
- The bank's net interest margin (NIM) expanded by four basis points yoy and by 14 basis points quarter on quarter (qoq) in Q3FY2006.
- Its net non-performing assets (NPAs) as a percentage of its customer assets improved markedly by 35 basis points yoy and by eight basis points qoq. The NPAs now stand at 0.95% of the net customer assets.
- UTI Bank's Tier-I capital adequacy ratio (CAR) stood at a comfortable 7.54% on December 31, 2005 whereas its overall CAR stood at 11.77%.
At the current market price of Rs323, the stock is quoting at 12.2x its FY2008E earnings per share (EPS) and 2.2x its FY008E book value (BV). - I reiterate Buy recommendation on the bank with the price target of Rs360.
