Emkay Global Financial Advises ‘Hold’ Rating On Union Bank of India with a Target Price of Rs 95

In its research report dated October 4, 2023, Emkay Global Financial has recommended a hold rating on Union Bank of India, setting a target price of Rs 95.

Emkay Global Financial’s research report on Union Bank of India reflects the recent positive sentiment surrounding Public Sector Banks (PSBs). Many PSB stocks have seen upward momentum due to improved growth and asset quality outcomes, as well as capital-positive investment guidelines. Union Bank of India has also benefited from this positive trend and recently boosted its capital through a successful Qualified Institutional Placement (QIP) of Rs 50 billion at Rs 86.6 per share. This capital infusion has contributed to an improved return profile for the bank.

Union Bank of India has undergone a significant turnaround, recovering from three consecutive years of losses (FY18-20) caused by the forced merger of smaller PSBs and the impact of the COVID-19 pandemic. The bank achieved healthy Return on Assets (RoA) and Return on Equity (RoE) of 0.7% and 12%, respectively, in FY23. It is expected to maintain RoA and RoE of 0.9% and 14-15%, respectively, for FY24-26E, driven by better growth and contained provisions.

The bank has also implemented a major management and human resources revamp, strengthening its retail and digital banking capabilities. This strategic move positions Union Bank of India to capitalize on opportunities in the new-age lending landscape. Formerly capital-starved, the bank is now well-capitalized, with a CET-1 capital of 12.3% pre-QIP in 1Q, expected to receive a further boost of 85 basis points from the recent QIP.

Emkay Global Financial notes that following the recent uptick in the bank’s stock price, the valuation gap with peers has largely narrowed. Currently, the recommendation for Union Bank of India is to HOLD, with a plan to reassess the rating and target price once there is better clarity on the bank’s growth plans post-QIP.

This research report provides valuable insights for investors considering Union Bank of India, highlighting its impressive turnaround, strengthened capital position, and strategic focus on retail and digital banking.

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