Union Bank of India an outperformer: P Lilladher

Prabhudas Lilladher report has maintained outperformer rating on Union Bank of India with target price of Rs 220 in its May 08, 2008 report.  "UBI’s Q4FY08 net profit grew by 128% YoY at Rs5.2bn, higher than our estimate of 92%, mainly due to significant decline in employee costs and tax expenses during the quarter. Staff costs declined 62% YoY and 80% QoQ due to reversal of Rs1.3 billion in AS-15 related employee provisions, already provided for in M9FY08. The bank decided to reduce its networth by the remaining amount of shortfall in transitional liability of AS-15 expenses of Rs 3.9 billion."

"Thus, the earlier provisions were redundant hence the write-back. Key positives remain 176bps QoQ increase in CASA and further improvement in asset quality. Increasing FY09E earnings by 5%, factoring in absence of annual write-off in the transitional shortfall in AS-15 related expenses. UBI needs capital (tier I at 7%) and with GoI holding 55% stake, it is considering a rights issue, however, approvals are awaited. We have not factored in any equity dilution. At the CMP, the stock is quoting at 5.4x FY10E EPS, 1.1x FY10E BV and 1.1x FY10E ABV. Rating revised to Outperformer, while price target maintained at Rs 220" says Prabhudas Lilladher report.