Neutral Union Bank of India; target of Rs 200: Motilal Oswal

Moneycontrol • 11 days ago

Original source

Key Investment Pillars

  • Strong NII growth: Union Bank of India (UNBK) reported a 20% YoY/5% QoQ increase in NII, driven by improving NIMs (up 6bp QoQ to 2.86%) and healthy loan growth (19.4% YoY/5.6% QoQ).
  • Healthy loan growth: Loan growth was led by the RAM segment, with a focus on margin-accretive expansion, and the bank aims to maintain a domestic CD ratio of 80-84%.
  • Improving asset quality: Fresh slippages declined 11.5% QoQ, and the bank has built a standard asset provision buffer of INR10b, with an estimated ECL transition impact of INR55b.
  • Earnings upgrade: We raise our FY27E earnings by 5%, factoring in an improving earnings trajectory, and project FY27E RoA/RoE at 1.3%/16.5%.

Thesis Validation Checklist

  • Monitor loan growth: Track loan growth in line with systemic trends and the bank's ability to maintain a healthy CD ratio.
  • Asset quality trends: Watch for continued improvement in asset quality, with a focus on slippages, recoveries, and provisioning.
  • NIM expansion: Monitor NIMs for further expansion, driven by improving yields and lower cost of deposits.
  • ECL transition impact: Track the bank's progress on ECL transition and its impact on profitability and capital adequacy.