Bank of India

United Bank of India is entering the capital market on the 23rd of Feb 2010 with a public issue of 5 crore equity shares, issued in the price band of Rs.60-66 per share. It aims to raise Rs.300 crore at the lower price band and Rs.330 crore at the upper price band. Retail investors have been given a discount of 5% over the issue price. It seems like a modestly priced bank issue but somehow, it does not seem to have the kind of brand presence, which is usually associated with PSU banks. This maybe due to the fact that of the 1505 branches, 973 are in Eastern India and 258 are in North East India; 82% presence is in Eastern India only. Hence for the rest of India, it's name is not too familiar, often getting confused for Union Bank of India. The bank, probably because of its concentration in East India, where credit offtake is typically lower than the deposit inflows, which is the banking pattern of the region, the bank obviously has healthy CASA deposits. As at 30th September 2009, the share of CASA deposits was at 33.96% of the total deposits of which savings formed 26.41%. Naturally, this brings down its cost of funds, which was at 5.78% for FY09 as against the average cost of nationalized banks at 6.18%. This is also the reason why the bank has a low credit-deposit ratio of 63.7% while the cost-income ratio is high at 57%. But this is also the reason why the growth of the bank will remain dull and stable and unless the bank gets a pan India presence, its growth rate would not exactly jump through the roof. And it is to tackle this issue of growth that the bank is making this IPO. Its main purpose is to improve the capital adequacy. As at 30th Sept 2009, it was at 12.93% and it is expecting that once the fund infusion comes, it will go up to 15%. The Govt is injecting an additional dosage of Rs.550 crore through preference share allotment. This bank also faces the risk faced by all the PSU banks - it has to dance to the whims and fancies of the Govt. The agriculture waiver of loans is such a case in point. Its outstanding from farmers as at 31st Dec 2009 stood at Rs.33.13 crore, which is not too much but then the sword of the Govt diktat keeps hanging. Financially, the bank is being compared with the likes of Allahabad Bank and Andhra Bank. But even compared to these two, it is a much smaller bank, in terms of earnings. The total business (deposits and advances) of the bank stood at 1.05 lakh crore as of September 2009. The bank posted a net profit of Rs.358.55 crore for FY09 as against Rs.769 crore posted by Allahabad Bank and Rs.653 crore posted by Andhra Bank. NIM of United Bank was at 2.14% for FY09. Allahabad Bank for Q3FY10 had a NIM of 3.2% and Andhra Bank at 2%. So this comes somewhere in between. Net NPA was at 1.3% which is much higher than that of Andhra Bank of 0.17% and 0.35% of Allahabad Bank as at31st Dec 2009. Net profit for H1FY10 was at Rs.231.10 crore and on an equity capital of Rs.266.43 crore, annualized EPS works out at Rs.17. This gives us a PE of 4 times on the upper price band of Rs.66 and 3.5 times on the lower band of Rs.60. Andhra Bank has a similar annualised EPS of Rs.17 and its current market price is Rs.100, giving us a PE of 6 times. So if we keep Andhra Bank as a benchmark, then probably, the valuation of United Bank looks attractive. Gains will not exactly be windfall but slow and steady. So if Andhra Bank is your cup of tea, so will United Bank be.

Bank of India

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