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Kolkata: PL Capital, a prominent brokerage of India (formerly Prabhudas Lilladher) has issued a Buy call on Union Bank of India (UNBK IN), a public sector lender of the country. However, the brokerage has also mentioned that NIM to drag earnings of the bank. It has also pointed out to lower PSLC (priority sector lending certificate) fees. (Incidentally, if a bank falls short of its priority sector lending target, it can purchase priority sector lending certificates from other banks which have exceeded targets set for them.)
PL Capital has set a target price of Rs 150. The 52-wk high of the stock is Rs 158.65 and the 52-wk low is Rs 100.81. The stock was trading at Rs 143.12, up Rs 0.48 (or 0.34%) on Tuesday, July 22 afternoon.
Union Bank witnessed "a weak quarter owing to lower fees/NII (net interest income) which led to core PPoP (Pre-Provision Operating Profit) being a miss by 17.5%. PSLC income opportunity was not available in Q1'26 due to change in gold loan regulations. Hence, we cut fees for FY26/27E by ~10%," wrote PL Capital in a report.
"Asset quality remains a silver lining with lower net slippages resulting in controlled credit costs; we GNPA expect to further improve by 92bps from 3.52% in Q1'26 to 2.6% by FY27E. With core RoA of 0.9x in FY27, stock is valued at 0.8x on Mar 27 ABV. Due to cut in fees/NII we lower core PAT for FY26/27E by avg. 8% and hence cut TP to Rs150 from Rs160, keeping multiple at 0.9x," mentioned the brokerage. This is the justification PL Capital retained 'Buy' on Union Bank.
Commenting on the asset quality of the bank, PL Capital has said, "Trend of gross recoveries being higher than slippages is expected to continue. To improve recoveries, bank is also exploring one-time settlement option." There is a reduction of both Gross NPA and net NPA in Q1 FY26.
eThere is also a mention of special mention accounts. It refers to a loan account which is showing early signs of distress but is yet to turn into an NPA. Banks categorise accounts which could be as risk of default as special mention account. "In SMA, repayments are coming in owing to government support. In Q1, there is usually muted recovery. Also, some decisions pending at NCLT may materialise in Sept' 25," PLS Capital mentioned.
Other highlights that the briokerage mentioned are:
Yields on advances fell due to Repo Rate cut
CASA ratio fell to 32.5%
GNPA/NNPA improved to 3.50%/0.6%
Credit cost increased to 0.5%
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