HDFC Securiti
es has maintained 'Neutral' on Union Bank of India with target price of Rs 244 as against current market price (CMP) of Rs 228 in its report.
Commenting on the investment rationale, HDFC Securities said, ''We believe RBI's recent refinancing guidelines will have a multipronged benefit to the banking sector (esp. PSBs). The refinancing guidelines would not only reduce the large incremental impairments but also put to rest apprehensions about rising slippages from restructured pool. We build in a slippage ratio of avg. 1.9% FY15-17E vs. 2.5% in FY14.With relatively lower Tier-I of 7.3% (one of the concerns) we estimate capital requirement of Rs 137 billion (95% of MCap) over F16-19E. We believe the bank's current balanced growth approach (FYTD B/S grew 2%); a pick-up in macros and deleveraging exercise by corporates could lower the RWA/Asset. Thus dilution risk could be lower than expectations.Union Bank of India has significantly underperformed (10%) vs. the Banking indices post 2Q results. The underperformance was largely due to more than expected higher stress addition and shortfall on NIM guidance. The recent underperformance has made current valuations compelling at 0.84x FY17E ABV for a RoA that could scale up to 0.7% FY17E (+20bps over 15E). However, we maintain Neutral rating on the stock and wait for a better entry point. Revise TP to Rs 244/sh (0.9xFY17E ABV) as we rollover to FY17E ABV.'' Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.
