Buy Union Bank of India; target of Rs 221: Anand Rathi

Moneycontrol • 11 days ago

Original source

Key Investment Pillars

  • Credit growth acceleration: Net advances grew by 19.4% y/y, led by Corporate and MSME segments, with the management guiding for credit growth in line with the system (~18-19%) in FY27e.
  • Margin expansion: NIM improved by 6bps q/q to 2.86%, driven by a 10bps q/q improvement in yields and higher LDR, with ~53-55% of the loan book repo-linked, expected to improve further.
  • Asset quality improvement: Gross slippages declined to 71bps from 82bps in Q1FY27, with the bank estimating an ECL transition impact of ~Rs55bn and building an additional buffer of Rs10bn.
  • Operational efficiency: Core operating profit grew faster than the balance sheet, supported by margin expansion and moderate opex growth.

Thesis Validation Checklist

To validate the investment thesis, watch for:

  • Sustained credit growth: In line with the system, driven by Corporate and MSME segments.
  • Margin expansion: Driven by improving yields and higher LDR.
  • Asset quality: Continued decline in gross slippages and improvement in NPA trends.
  • Operational efficiency: Moderate opex growth and improving core operating profit. These signals will indicate whether the bank's strong core momentum can be sustained, supporting the buy rating and 12-month target price of Rs221.