Union Bank of India - Modest Operating Performance; Net Interest Margins Decline 15 Bps: Motilal Oswal

Motilal Oswal Report

Union Bank of India reported Q2 FY25 PAT of Rs 47.2 billion (34.4% YoY, 27% beat) driven by healthy other income and lower provisions (amid the reversal of standard assets provision).

Net interest income was flat YoY at Rs 90.5 billion (down 3.9% QoQ; 5% miss). Net interest margins moderated sharply by 15 bp QoQ to 2.9% during the quarter.

Loan book grew at 11.6% YoY/2.1% QoQ while deposits grew 9.2% YoY/1.5% QoQ. Credit-deposit ratio, thus, increased slightly to 72.2%.  Fresh slippages increased sharply to Rs 52.2 billion due to one large corporate account in the PSU sector.

Gross non-performing asset ratio declined 18 bp QoQ to 4.36%, while net non-performing asset ratio increased 8bp QoQ to 0.98%. Provision coverage ratio declined 255 bp QoQ to 78.4%.

We cut our earnings for FY26 estimate by 4.7% and estimate RoA/RoE of 1.1%/15.4% by FY26. Reiterate Buy with a target price of Rs 135 (based on 0.9 times FY26E adjusted book value).

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