Union Bank’s Shares Soar 26% in a Month, Reflecting Strong Performance in PSU and Stock Markets
Union Bank’s stock has seen a substantial increase of 26% over the past month, contributing to a remarkable six-month gain of 65%. This surge in the value of Union Bank’s stock is in line with the overall upward trend observed in other Public Sector Undertaking (PSU) and stock market shares, which have recorded gains ranging from 18% to 52% over the past month. Analysts attribute this surge in PSU stock prices to improved growth prospects, enhanced asset quality, and favorable investment guidelines that have injected fresh capital into the sector.
“Union Bank has also reaped the benefits of this positive trend, along with its recent successful effort to bolster capital through a fruitful Qualified Institutional Placement (QIP), raising Rs 5,000 crore at Rs 86.6 per share. This move has resulted in an enhanced return profile for the bank. Furthermore, its relatively low valuations (prior to the recent upswing) have contributed to a significant gain, with the stock price rising by 12% in the past week. Union Bank’s transformation is indeed a remarkable success story among PSU banks, bouncing back from three consecutive years of losses (FY18-20) triggered by the forced merger of smaller PSU banks and the subsequent impact of the Covid pandemic,” noted Emkay Global in a research note.
Emkay Global highlighted that Union Bank reported a healthy return on assets (RoA) of 0.7% and a return on equity (RoE) of 12% in FY23. The brokerage firm expects the bank to report RoA figures of 0.9% and RoE figures of 14-15% for FY24-26, driven by stronger growth and controlled provisions.
Union Bank has also undergone significant management and HR restructuring and is actively strengthening its retail and digital banking divisions, positioning itself to capitalize on opportunities in modern lending. “Previously capital-starved, the bank is now well-capitalized with a Common Equity Tier 1 (CET 1) capital of 12.3% before the recent QIP. The QIP issuance is expected to boost its capital position by an additional 85 basis points. Following the recent upward movement in its stock price, the valuation gap between Union Bank and its peers has significantly narrowed, with both trading at 0.9 times their book value,” stated the domestic brokerage firm.
As of now, Emkay Global has assigned a ‘HOLD’ rating to Union Bank’s stock. The brokerage firm has indicated that it will review its target price of Rs 95 once it gains better clarity on Union Bank’s growth strategies post the QIP. On Wednesday, the stock was trading 0.80% lower at Rs 111.15. Based on Emkay’s target price, this suggests a potential downside of 14.52% for the stock.