41% Upside Potential On This Banking Stock, “Buy” Says Motilal Oswal

Asset quality sees improvement

According to Motilal Oswal, the advances book is likely to grow 6-8% for FY22, driven by Retail and Agri, which would continue to show strong traction of 12-13%.

"The bank has guided for net slippage to be less than Rs 140 billion for FY22E. The total slippage for FY22 is likely to be 2-2.5%. : The AAA rated stand at 54%, AA rated at 30%, and A rated at 13%; thus, 93-94% of the book is rated A & above. Furthermore, state/central NBFC stands at 32%, while NBFC backed by PSUs stands at 14%," Motilal Oswal has said in its report.

Union Bank: healthy earnings

Union Bank reported healthy earnings, supported by recovery from the DHFL resolution. It also posted an improvement in asset quality, aided by higher write-offs and strong recoveries/upgrades.

"However, loan growth remained muted due to decline in corporate advances, while modest growth recovery was seen in the Retail, Agri, and MSME (RAM) segment. Overall, the management indicated asset quality would continue to improve, aided by moderation in the slippage trend and higher recoveries from stressed asset resolutions.

Furthermore, SMA-2 overdue declined to 2.3% of loans, while the restructured portfolio increased to 3.7% of loans. Thus, we estimate credit costs at 2.2%/1.9% for FY22E/FY23E and RoA/RoE at 0.8%/14.2% by FY24E. We maintain Buy, with target price of Rs 65 (0.7x Sep'21 ABV)," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Financial Services. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.