Investec has upgraded Union Bank of India (UNBK) to “buy” with a target price of Rs 151, indicating a potential upside of 25.7%. The bank’s stock has corrected nearly 30% over the past 3.5 months due to concerns around corporate asset quality stress, as its SMA book increased and the management made voluntary provisions for corporate accounts.
Despite slower deposit growth and regulatory challenges affecting the sector, Union Bank is now trading at 0.8x P/B and offers a 3.8% dividend yield, close to its historical average, with a strong margin of safety built into valuations. The bank is well-capitalized, has ample liquidity, and superior provisioning cushions. Additionally, its Core Pre-Provision Operating Profit (PPoP) is better than peers, enabling the bank to absorb higher credit costs while maintaining a 1% RoA.
