Flash Focus: Fast Facts For Smart Investors

I've taken some shares of Union Bank Ltd (Rs.119.45), for my portfolio clients, after its spectacular June, 2024 quarter results.

Investment Rationale:

Strong Financial Performance: In Q1FY25, Union Bank of India (UBI) reported a 13.68% YoY increase in net profit and a 6.47% YoY growth in net interest income. The bank has demonstrated solid growth, especially in its liability franchise, with domestic deposits rising by 8.52%. Photo: Just Dial.

Business Growth: Union Bank of India Lt saw its total business grow by 9.76% YoY, driven by an 11.46% increase in gross advances. The RAM (Retail, Agri, MSME) segment grew significantly by 14.53%, indicating a strong foothold in crucial sectors.

Improved Asset Quality: Gross NPA dropped to 4.54%, a YoY reduction of 280 bps, and net NPA fell to 0.90%. This shows improved risk management and a healthier balance sheet.

Capital Adequacy: The CRAR improved to 17.02% in June 2024 from 15.95% a year earlier, indicating a robust capital position to support future growth.

Key Ratios (Q1 FY25 vs Industry Averages):

💢P/E Ratio: Union Bank's P/E ratio stands at 9.85, which is lower than the industry average, suggesting the stock may be undervalued.

💢Book Value: UBI's book value per share is around Rs. 106, indicating a price-to-book ratio of 1.13, which is competitive with peers.

💢ROCE & ROE: UBI's Return on Capital Employed (ROCE) stands at 9.80%, and Return on Equity (ROE) at 15.70% --  both in line with industry standards.

Caveat: On the flip side, the interest income and other income declined in Q1FY25 as compared to the March 2024, quarter, reflecting a general industry trend of softer performance in the first quarter. 

Furthermore, according to a top official of the bank: "While the net interest margin (NIM) is expected to remain higher than the guidance of 2.8% to 3%, however maintaining it above 3% may pose tough challenges in future".

Conclusion: Union Bank of India Ltd's strong financials, improving asset quality, and robust capital position make it an attractive investment option, especially at its current valuation. 

I'm looking at targets of Rs.127 and Rs.135 in the short term. SL: Rs.111.