Union Bank of India becomes fourth PSU lender to cross Rs 1-lakh-crore valuation

The stock in 2023 jumped nearly 49 percent while so far in 2024 it advanced nearly 15.1 percent. The firm will report its December quarter earnings on 20 January.

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Union Bank of India has become the fourth public sector lender to surpass the Rs 1-lakh-crore market value with its shares soaring over 15 percent since January 1, 2024.

The Union Bank of India stock hit a 52-week high of Rs 140.15 on the BSE, up 2.4 percent, intraday on January 16. At 12pm, the stock was trading at Rs 137 on the BSE, up 2 percent from its previous close with a valuation of Rs 1.01 lakh crore.

Earlier, State Bank of India, Bank of Baroda and Punjab National Bank had achieved this milestone.

The Union Bank stock had jumped nearly 49 percent in 2023. The lender will report its December-quarter earnings on January 20.

Union Bank hitched a ride on the strong rally in public sector firms. Analysts highlight undervaluation of PSU banks, compared to their private peers. Public sector banks have improved balance sheets, with enhanced asset quality through low slippage ratios and reduced credit costs.

Union Bank recorded a 90 percent on-year surge in net profit, reaching Rs 3,511.4 crore for the quarter ended September 30, 2023, compared to Rs 1,848 crore a year before. Its NII increased 10 percent to Rs 9,126.1 crore from Rs 8,305 crore on-year, while its gross non-performing asset (GNPA) dropped to 6.38 percent in the September quarter, down from 7.34 percent in the June quarter, while net NPA decreased to 1.30 percent from 1.58 percent quarter-on-quarter.

According to analysts, Union Bank of India posted strong quarterly earnings surpassing estimates, driven by increased treasury gains, solid margins, and reduced provisions. Stable loan growth, steady deposits, and a largely unchanged CASA mix were noted. The decline in fresh slippages, coupled with robust recoveries and upgrades, contributed to strong asset quality. Analysts are optimistic about asset quality, citing a low SMA book (0.52 percent) and controlled restructuring (1.7 percent).

According to a recent Motilal Oswal note, state-run banks are set for a re-rating, driven by improved earnings, enhanced loan growth, stable margins, and controlled credit costs. The brokerage firm upgraded share price targets for public sector banks and issued a ‘buy’ rating across PSB counters.

The new target for Union Bank has been raised to Rs 150 per share from Rs 130. Analysts at MOFSL highlighted that select PSBs are aiming for a 1.2 percent Return on Assets (RoA), and their current earnings projection suggests FY25 RoAs to range 1 percent to 1.1 percent, indicating potential for further upgrades. Despite factoring in higher credit costs, MOFSL anticipates a 21 percent 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 percent earnings CAGR over FY23-26, with RoA or RoE improving to 1.2 percent/18 percent by FY26.

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