Union Bank Of India Crosses Rs 1 Tn Valuation, Fourth PSU To Achieve This Feat

Union Bank of India has emerged as the fourth public sector lender to breach the significant milestone of a Rs 1-lakh-crore market value, with its shares surging by over 15 per cent since the beginning of the year 2024.

The stock of Union Bank of India reached a 52-week high of Rs 140.15 on the BSE, marking a 2.4 percent increase intraday on January 16. At 12 pm, it continued to trade at Rs 137 on the BSE, representing a 2 per cent increase from its previous close, propelling its valuation to Rs 1.01 lakh crore.

In 2023 alone, Union Bank's stock experienced an impressive surge of nearly 49 per cent. The bank is scheduled to announce its December-quarter earnings on 20 January.

Union Bank's remarkable performance is part of the broader uptrend seen in public sector firms. Analysts attribute this to the undervaluation of PSU banks compared to their private counterparts. Public sector banks, including Union Bank, have bolstered their balance sheets, showcasing improved asset quality through low slippage ratios and reduced credit costs.

The bank reported a robust 90 per cent year-on-year increase in net profit, reaching Rs 3,511.4 crore for the quarter ending 30 September 2023, compared to Rs 1,848 crore in the corresponding period the previous year. Its Net Interest Income (NII) also witnessed a 10 per cent growth to Rs 9,126.1 crore from Rs 8,305 crore year-on-year. Moreover, Union Bank's gross non-performing asset (GNPA) declined to 6.38 percent in the September quarter, down from 7.34 per cent in the June quarter, and its net NPA decreased to 1.30 per cent from 1.58 per cent quarter-on-quarter.

Analysts attribute Union Bank of India's strong quarterly earnings to increased treasury gains, solid margins, and reduced provisions. The bank demonstrated stable loan growth, steady deposits, and a largely unchanged CASA mix. The decline in fresh slippages, coupled with robust recoveries and upgrades, contributed to a strong asset quality. Analysts express optimism about asset quality, citing a low Special Mention Accounts (SMA) book (0.52 per cent) and controlled restructuring (1.7 per cent).

According to a recent note from Motilal Oswal, state-run banks are poised for a re-rating due to improved earnings, enhanced loan growth, stable margins, and controlled credit costs. The brokerage firm upgraded share price targets for public sector banks, issuing a 'buy' rating across PSB counters.

The revised target for Union Bank has been raised to Rs 150 per share from Rs 130. Analysts at MOFSL highlighted that select PSBs are targeting a 1.2 per cent Return on Assets (RoA), with current earnings projections suggesting FY25 RoAs ranging from 1 per cent to 1.1 per cent, indicating potential for further upgrades. Despite factoring in higher credit costs, MOFSL anticipates a 21 per cent earnings compound annual growth rate (CAGR) for PSBs from FY24-26.

Analysts note the transformation of PSBs into more sustainable entities in recent years, with profitability expected to grow to Rs 1.7 lakh crore by FY26, up from Rs 57,300 crore in FY22. The brokerage firm projects a 22 per cent earnings CAGR over FY23-26, with RoA or RoE improving to 1.2 per cent/18 per cent by FY26.