Union Bank Q3 upbeat: Brokerage sees double-digit upside, recommends buying

In Q3FY23, Union Bank garnered a robust growth of 106.81% in net profit to ₹2,245 crore compared to a profit of ₹1,085 crore in Q3FY22. NII came in at ₹8,628 crore in Q3FY23, increasing by 20.26% from ₹7,174 crore in the Q3 of the previous fiscal. Net interest margin (NIM) expanded in Q3FY23 to 3.21% compared to 3% in Q3FY22 and 3.15% in Q2FY23. In terms of asset quality, Union Bank’s gross NPA dropped sharply by 369 bps YoY and 52 bps QoQ to 7.93%.

As per Motilal Oswal’s post-Q3 note, Union Bank of India reported 107% YoY growth in PAT to ₹22.4 billion (in-line) driven by lower provisions and margin expansion of 6bp QoQ to 3.21% in 3QFY23. Business growth was healthily fuelled by the RAM segment while CASA ratio witnessed a slight moderation during the quarter.

Further, the note added that fresh slippages moderated, which coupled with healthy recoveries and upgrades resulted in an improvement in asset quality ratios. PCR improved to ~75% in 3QFY23. Restructured book declined to 2.38% of loans from 2.60% in 2QFY23. The SMA book, at 72bp, was also fairly controlled.

From the management commentary, Motilal’s note cited that while the bank is tracking well on its guidance for FY23, management has not changed its guidance due to the volatile external environment. Union Bank’s management maintains its prudence guidance.

Also, the management expects the margin to be around the 3% range for FY23. Union Bank is targeting to reduce its credit cost to below 1.7%.

On valuation, Motilal’s note said, “UNBK reported a healthy quarter with earnings growth driven by lower provisions and margin expansion. Fresh slippages moderated, coupled with a low SMA book (0.72%) and controlled restructuring (2.4%) provide a better outlook on asset quality. Loan growth continued to remain healthy fuelled by the RAM segment, which remains the focus area of the bank. We largely maintain our earnings assumptions and estimate an RoA/RoE of 1.0%/16.8%, respectively, by FY25. Reiterate BUY with a TP of INR100 (premised on 0.9x Sep’24E ABV).”

Last week, on Friday, Union Bank shares closed at ₹81.30 apiece broadly flat on BSE compared to the previous session. The bank’s market cap is over ₹55,566 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.