Result Update (Q4 FY10) May 07, 2010

Union Bank – MP
CMP Rs297, Target Rs319

Sector: Banking – Net interest income was up 51%yoy, net profit, too reported a
Sensex: 16,988
healthy 28%yoy growth.
CMP (Rs): 297 – Non-interest income reported a modest 6%qoq growth; fee
Target price (Rs): 319 income continues to be a key driver
Upside (%): 7.3 – Loan book was up 23%yoy; deposit book, too reported above
52 Week h/l (Rs): 318 / 157 system growth rate. LDR remains comfortable at 71% levels
Market cap (Rscr) : 14,977
– Concerns over asset quality linger, provision coverage ratio
6m Avg vol (‘000Nos): 745 remains adequate.
No of o/s shares (mn): 505
– Capital remains comfortable, valuations appear rightly priced,
FV (Rs): 10
maintain MP.
Bloomberg code: UNBK IB
Reuters code: UNBK.BO Result table
(Rs m) Q4 FY10 Q3 FY10 % qoq Q4 FY09 % yoy
BSE code: 532477
Total Interest Inc 35,617 32,936 8.1 32,897 8.3
NSE code: UNIONBANK
Interest expended (21,656) (22,289) (2.8) (23,633) (8.4)
Prices as on 06 May, 2010.
Net Interest Inc 13,961 10,647 31.1 9,264 50.7
Shareholding pattern
Other income 4,925 4,648 6.0 5,590 (11.9)
March '10 (%)
Total Income 18,887 15,294 23.5 14,854 27.1
Promoters 55.4 Operating exp. (7,411) (6,152) 20.5 (5,740) 29.1
Institutions 30.1 Provisions (3,400) (1,611) 111.1 (2,834) 20.0
Non promoter corp hold 4.6 PBT 8,075 7,531 7.2 6,281 28.6
Public & others 9.9 Tax (2,140) (2,190) (2.3) (1,630) 31.3
Reported PAT 5,935 5,341 11.1 4,651 27.6
Performance rel. to sensex EPS 47.0 42.3 11.1 36.8 27.6
(%) 1m 3m 1yr
Union Bank 3.1 15.7 34.8 Key Ratios Q4 FY10 Q3 FY10 chg qoq Q4 FY09 chg yoy
BoB 11.6 20.4 88.2 NIM (%) 3.4 2.8 0.6 2.7 0.7
BoI 7.3 1.2 19.2 Yield on adv (%) 9.9 11.5 (1.6) 11.1 (1.1)
PNB 5.9 15.2 71.2 Yield on invest (%) 8.1 6.8 1.2 7.3 0.7
Yield on Funds (%) 8.0 8.0 0.1 8.8 (0.8)
Cost of Deposits (%) 5.3 5.8 (0.4) 6.9 (1.6)
Share price trend
Cost of Funds (%) 5.5 5.4 0.1 6.4 (0.8)
210 Union Bank Sensex
CASA (%) 31.7 32.3 (0.6) 30.1 1.7
190
C/D (x) 0.7 0.7 0.0 0.7 0.0
170
150 Non-int inc (%) 26.1 30.4 (4.3) 37.6 (11.6)
130 Non-int inc/Int exp (%) 22.7 20.9 1.9 23.7 (0.9)
110 Cost to Income (%) 39.2 40.2 (1.0) 38.6 0.6
90 8.4 4.3 7.4
Prov./Income (%) 4.1 1.0
70
50 BV (Rs) 173.4 167.3 6.0 137.9 35.5
May-09 Aug-09 Dec-09 Apr-10 RoE (%) 23.7 25.3 (1.6) 24.8 (1.1)
RoA (%) 1.3 1.3 0.1 1.3 0.1
CAR (%) 12.5 13.5 (1.0) 13.3 (0.8)
Gross NPA (%) 2.2 2.0 0.2 2.0 0.2
Net NPA (%) 0.8 0.6 0.2 0.3 0.5
Source: Company, India Infoline Research
Union Bank – (Q4 FY10)

Net Interest Income was up 51%yoy, net profit, too reported a healthy 28%yoy growth.
Union Bank of India (UBI) reported a healthy 51%yoy growth in its net interest income. This growth in
NII was led by substantial decline in interest cost and sturdy loan growth. Interest expense for the
bank was down 9%yoy, largely due to increasing proportion of CASA deposits. Also the benign interest
rate regime and re-pricing exercise have enabled the bank to report substantial decline in cost-of-
deposits. During Q4 FY10, cost-of-deposits for the bank declined by 45bps sequentially to 5.3%. Loan
book for the bank was up 23.4%yoy (up 14%qoq). Non-interest income declined 12%yoy, largely due
to lower trading gains. While operating expenses grew 21%qoq (29%yoy) cost-to-income ratio
improved sequentially to 39.2%. With provisions rising 20%yoy, provision/income ratio stood at 8.4%.
As a result, net profit for the bank was up 28%yoy (11% sequentially)

Non-interest income reported a modest 6%qoq growth; fee income continues to be a key
driver
During Q4 FY10, the bank reported a modest 6%qoq growth. On a y-o-y basis, non-interest income
however declined 12%yoy. As a result, the share of non-interest income to total income stood at 26%.
On an annualized basis, non-interest however reported a healthy 33%yoy growth. This was led by
growth in income from core fee based income (up 33%yoy), treasury income (up 41%yoy) and
recovery in written-off accounts (up 24%yoy). Core fee income included income from loan syndication,
transaction banking activities etc. We expect the bank to witness 21%CAGR in non-interest income
over FY10-12E

Loan book was up 23%yoy; deposit book, too reported above system growth rate. LDR
remains comfortable at 71% levels.
UBI reported a healthy 23%yoy growth in its loan book. Even on a sequential basis, loan book was up
14%. The bank’s share in system credit has now improved 3.34% as at end FY10 as against 3.12% as
at end to FY08. On the other hand, its share in system deposit has improved to 3.5% as at end FY10
as against 3.1% as at end FY08.The bank witnessed growth across all segments. The MSME advance
book grew 41%yoy (up 10%qoq), the agriculture book was up 33.7%yoy (up 3%qoq) while its retail
book was up 33.8%yoy (up 14%qoq). Amongst retail loans, the bank has been growing its home loan
portfolio at a steady rate (up 23%yoy).

Deposit book for the bank was up 22.6%yoy (12.5%qoq). This growth in deposit book could be
attributable to substantial rise in CASA deposit. Impetus towards financial inclusion and increasing
branch network has enabled the bank to garner low-cost deposits. CASA deposits for the bank were up
29%yoy (10%qoq). Of this, savings deposits grew at a healthy pace of 32%yoy. As a result, the share
of CASA in total deposits now stood at 31.7% as against 30.1% as at end FY09. The loan-to-deposit
ratio for the bank has remained at a comfortable zone of 71% for past two quarters.

Concerns over asset quality linger, provision coverage ratio remains adequate.
UBI has been witnessing increasing concerns on its asset quality for the past few quarters. Gross NPL
for the bank were up 39%yoy (up 28%qoq), much ahead of its credit growth. GNPL for the bank stood
at Rs26.7bn or 2.2% of total loans. Net NPL, too were up 57%qoq to Rs9.6bn or 0.8% of total loans.
Provision coverage ratio has improved to 74%. The bank restructured Rs20bn of loans or 1.6% of total
loans during the year, taking the total loans restructured to Rs50bn or 4.1% of total loans. While 8%of
loans restructured earlier turned NPA, we expect further accretion in coming period.

Capital remains comfortable, valuations appear rightly priced.

Capital adequacy for the bank remains comfortable with CAR at 12.5% and Tier I CAR at 7.9%. During
the year, the bank raised capital of Rs200bn via issue of perpetual bond. However with credit growth
targeted at 25% for FY11, we expect the bank to approach GoI for further capital. In the recent media
interaction, the bank management has indicated for raising capital of upto Rs20bn from GoI. Despite
best in class returns ratio (RoE of 23%+ and RoA at 1.1%) as compared to its peers Bank of Baroda
(RoE 20%, RoA 1.3%), Corporation Bank (RoE 22.2%, RoA 1.2%), Canara Bank and PNB, the bank
attracts lower valuation due to concerns pertaining to its asset quality. We upgrade our FY11 and FY12
net profit estimates by 17% and 20% respectively to factor in higher loan and deposit growth. We
expect the bank to witness 23% CAGR in balance sheet over FY10-12E, translating into 18%CAGR in
net profit over FY10-12E. The stock has had a decent performance for past one and three months.
With limited upside in near term, we assign 1.2x multiple to FY12 book to arrive at a price target of
319. Maintain MP.

Result Update 2
Union Bank – (Q4 FY10)

Results comparison (Q4 FY10)

Key Ratios UBI BoB Corp Bank
NIM (%) 3.4 2.5 3.0
CASA (%) 31.7 28.6 35.6
C/D (%) 0.7 68.2 72.6
Non-int inc (%) 26.1 42.6 32.7
Cost to Inc (%) 39.2 40.3 37.2
BV (Rs) 173.4 402.6 378.4
RoE (%) 23.7 20.3 22.2
RoA (%) 1.3 1.3 1.2
CAR (%) 12.5 15.4 14.4
Gross NPA (%) 2.2 1 1.4
Net NPA (%) 0.8 0.3 0.3
Source: Companies, India Infoline Research

Financial summary
Y/e 31 Mar (Rs m) FY09 FY10 FY11E FY12E
Total operating income 52,961 61,672 78,800 92,074
yoy growth (%) 26.9 16.4 27.8 16.8
Operating profit (pre-provisions) 30,820 36,593 49,207 56,563
Net profit 17,265 20,749 25,455 29,071
yoy growth (%) 24.5 20.2 22.7 14.2

EPS (Rs) 34.2 41.1 50.4 57.6

BVPS (Rs) 173.0 173.4 216.2 265.5
P/E (x) 8.7 7.2 5.9 5.2
P/BV (x) 1.7 1.7 1.4 1.1
ROE (%) 21.5 23.7 25.9 23.9
ROA (%) 1.2 1.2 1.2 1.1
Dividend yield (%) 1.7 1.9 2.2 2.4
CAR (%) 13.3 12.5 10.8 10.3
Source: Company, India Infoline Research

Result Update 3
Recommendation parameters for fundamental reports:

Buy – Absolute return of over +10%

Market Performer – Absolute return between -10% to +10%
Sell – Absolute return below -10%

Published in 2010. © India Infoline Ltd 2010

This report is for the personal information of the authorised recipient and is not for public distribution and should not be reproduced or redistributed
without prior permission.

The information provided in the document is from publicly available data and other sources, which we believe, are reliable. Efforts are made to try
and ensure accuracy of data however, India Infoline and/or any of its affiliates and/or employees shall not be liable for loss or damage that may
arise from use of this document. India Infoline and/or any of its affiliates and/or employees may or may not hold positions in any of the securities
mentioned in the document.

The report also includes analysis and views expressed by our research team. The report is purely for information purposes and does not construe to
be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed are our current
opinions as of the date appearing in the material and may be subject to change from time to time without notice.

Investors should not solely rely on the information contained in this document and must make investment decisions based on their own investment
objectives, risk profile and financial position. The recipients of this material should take their own professional advice before acting on this
information.

India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker,
Investment Advisor, etc. to the issuer company or its connected persons.

IIFL, One IBC, Jupiter Mill Compound, 841, Senapati Bapat Marg, Nr. Elphinstone Road, Lower Parel (W), Mumbai 400 013.

For Research related queries, write to: Amar Ambani at amar@indiainfoline.com or research@indiainfoline.com
For Sales and Account related information, write to customer care: info@5pmail.com or call on 91-22 4007 1000