United Bank of India - Review + Views

[chetan]

United Bank of India (UBI) is a 100% government-owned bank, with the market share of advances and deposits at 1.18% and 1.34%, respectively (as on FY09). As on January 31, 2010, the bank has 1,505 branches, 270 ATMs and one representative office in Bangladesh. UBI crossed the Rs1 trillion business mark in H1FY10. UBI, though has a pan-India presence, is more like a regional bank with a very strong presence in the Eastern part of the country.

Branch network – highly skewed: Of the network of 1505 branches, 64% are concentrated in the Eastern region.

Asset quality improving, but still a concern: As on September 30, 2009, the %GNPAs and %NNPAs stood at 2.48% and 1.30%, respectively.

Capital restructuring: UBI wrote-off accumulated losses to the tune of Rs2.8bn in FY05 and as on September 30, 2009, has no accumulated losses on its balance sheet.

Profitability and other rations are slightly lower compared to its peers like Corporation Bank, Andhra Bank. stay tuned for Analyst Views on the stock.

[chetan]

Prabhudas Lilladher analysts Abhijit Majumder and Umang Shah have the following view on the IPO of United Bank of India

As compared to its peer offerings in 2007 (Central Bank and Indian Bank), UBI is available at attractive valuations. Improvement in core
performance could lead to re-rating of the stock. We expect the impact of 2nd round of pension to be around 8.7% of pre issue networth, which is higher than industry average. Though lower margins, higher NPAs and lower return ratios could act as an overhang on the stock in near term, we recommend Subscribe to the issue in the medium term as there is significant margin of safety due to its attractive valuations.

[chetan]

SMC Research has a 3.5 STAR rating on the IPO with the following outlook for UBI,

United bank of India is one of the fastest growing banks in the industry. This is clearly evident from the company's business that grew higher than the industry rate in the current fiscal year. The banks deposit & credit growth of 18.71% & 15.52% compared to 7.5% & 3.5% of the scheduled commercial banks as a whole supports our evidence. The bank has improved its asset quality too. Its net non-performing assets (NPA) stood at 2.4% of net advances in FY05, which came down to 1.3% in September 2009.This is better compared
to the average of its peers such as Bank of Maharashtra, Dena bank & Vijaya bank.

However, the criteria on which the banks performance falls short of industry standards is its return on assets (RoA). Its annualized RoA stood at 0.64% as of September 2009 significantly lower than industry average RoA of 1%.So, all in all though its operational performance falls short of its peers, the offer price still looks attractive for retail investors with long term perspective.

[chetan]

ICICI Direct Research for retail Investors has the following suggestion,

Based on the Gordon growth methodology, United Bank of India can trade at 1.0x ABV (considering RoE of 14% and cost of equity of 14%, with beta of 1x). However, lower than peers RoA @0.64% and NIM @2% warrant a 10% discount. Even after this, the fair value of the stock comes at Rs 73 giving room for further upside from the issue price. We, therefore, recommend *SUBSCRIBE* on the issue.

[chetan]

HDFC Securities Institutional Research has the following Review and Recommendation for United Bank of India IPO,

The bank when compared to its peers is available at a discount in terms of price to book value. The bank at it upper band is available at P/BV of 0.7 which is lower than its peers namely Andhra Bank and Dena Bank. Although the financials of the bank has improved over the last few years, there is a long way to go before it becomes impressive. Also its regional focus, small size of business, low NIMs, low return ratios, high cost to income ratio, high NPA ratios, low provision coverage ratio, low credit deposit ratio compared to its peers creates some discomfort. The issue is priced fairly, though there might not be significant upside in the short term. The fact that the management of the company has given 5% discount for retail investors makes it more attractive. Investors who are comfortable investing in PSU stocks and have a medium term appetite could subscribe to the issue. The bank has immense scope to improve its performance on various parameters. The stock could react to this based on the timing and extent thereof over the medium term.

[Cher]

Chetan,
We would like to see your [dalalstreet (.) biz] recommendation regarding United Bank of India public issue.

Thank you,
Cher

[chetan]

HSBC Invest Direct has a Subscribe recommendation on the IPO of United Bank of India with the following comments to its clients,

The book value of the bank as on September 09 stands at Rs.94/share. On an adjusted book basis, the same is available at 0.89x September 09 book value which seems decent from the valuations perspective. PSU banks, typically, trade within the band of 0.8-1.3 on P/ABV (on a trailing basis). Moreover, consolidation in the PSU banking space could also lead to some valuation upside in the medium- to long-term. According to us, although UBI is amongst the weaker banks there is room for improvement on its yields and return on assets. The offer price discounts the weak ratios and thus leaves room for the investors. We, thus, recommend a Subscribe on its IPO issue.

[akumar]

Please share your review on the IPO.

What is your(dalalstreet) suggestion for us retail investors. Should we go for it or avoid it.

Thanks

[chetan]

Please share your review on the IPO.

What is your(dalalstreet) suggestion for us retail investors. Should we go for it or avoid it.

Thanks

Cher and Kumar,

Sorry I have been traveling a lot especially to Mumbai for my  Mom's treatment.. Its been really very busy and I neither could participate in any of the IPOs...

My apologies, hope to get back to routine early next month.

[Cher]

Chetan,

Take care of your Mom first, work will always be there.  Good luck with her treatment.

Cher