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Union Bank: Higher provisions mar profits - Views on News from Equitymaster

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Union Bank: Higher provisions mar profits
Oct 31, 2013

Union Bank of India (UBI) declared its results for the second quarter (2QFY14) and first half of financial year 2013-2014. The bank has reported 5.6% YoY growth in net interest income but the profits have fell by 62.5% YoY during 2QFY14. The profits for IHFY14 have also dropped by 27.9% YoY. Here is our analysis of the results.

Performance summary
  • Net interest income (NII) grows by 5.6% YoY in 2QFY14, on the back of robust 24.6% YoY growth in advances.
  • NIMs (net interest margins) decline to 2.7% in 2QFY14 from 3.1% in 2QFY13.
  • Net NPAs has inched upwards to 2.15% in 2QFY14 from 2.06% in 2QFY13. Gross NPAs stood marginally lower at 3.6% levels vis--vis 3.7% same quarter previous year; but were up on sequential basis.
  • Net profit declines by 62.5% YoY in 2QFY14 on account of weak net interest income and higher provisions.
  • Capital adequacy ratio stands at 9.7% at the end of 30th September 2013 as per Basel III norms.

Rs (m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Interest income 61,098 72,711 19.0% 121,797 141,284 16.0%
Interest expense 42,597 53,167 24.8% 85,078 102,648 20.7%
Net Interest Income 18,502 19,545 5.6% 36,719 38,636 5.2%
Net interest margin (%)       3.1 2.7  
Other Income 5,458 6,112 12.0% 10,370 13,674 31.9%
Other Expense 11,234 13,407 19.3% 21,692 25,943 19.6%
Provisions and contingencies 4,871 9,368 92.3% 10,056 16,183 60.9%
Profit before tax 7,856 2,882 -63.3% 15,342 10,184 -33.6%
Tax 2,310 801 -65.3% 4,680 2,501 -46.6%
Effective tax rate 29.4% 27.8%   30.5% 24.6%  
Profit after tax/ (loss) 5,546 2,081 -62.5% 10,662 7,683 -27.9%
Net profit margin (%) 9.1% 2.9%   8.8% 5.4%  
No. of shares (m)   596.8        
Book value per share (Rs)*   302.4        
P/BV (x)   0.4        
* (Book value as on 30th September 2013)

What to expect?

At the current price of Rs 121, the stock is valued at 0.4 times our estimated FY16 adjusted book value. We will furnish the detailed earnings update by tomorrow dated 1st November 2013 post the Analyst Meet scheduled today (31st October 2013).

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