FOURSTOCKS BLOG

 

  • NIFTY5,367.6  
  • -41.3 -0.8%
  • SENSEX17,868.3  
  • -123.7 -0.7%
Recs 9

PASS on United Bank IPO


posted by TEJASVI MOHANRAM on Monday, February 22nd, 2010


Banks are some of the most difficult companies to analyze...on account of multiple factors. Their assets and liabilities are  IOUs, their assets are the easiest to 'write off' and they run massive contagion risk and hence need a complicated regulatory (reserves) mechanism. Also the new PCR rules set by RBI and the monkey games surrounding that just makes the sector more complicated to look into.

But there is a bank (United Bank of India) on the IPO block and I have taken a decent look at this offering...so here goes.

 

(A) IPO Details

Currently 100% GoI owned

23rd to 25th of Feb 2010

Price Band: Rs. 60 - 66

Fresh issue of 5 cr shares, which amounts to 15.8% of post-issue equity

Company equity valuation of INR 2100 cr

 

(B) The Business (Dec 2009 numbers)

1,500 bank branches and 270 ATMs

Total assets of INR 72,000 cr

Loans (Advances) of INR 41,000 cr

Deposits of INR 65,000 cr

900+ branches (out of 1500) in Eastern region and 250 branches in North-east

Lending mix: 57% corporate, 14% SME, 20% Retail/Housing, 10% Agriculture

Major industries lent to: Textiles, Food processing, Infrastructure, Construction

 

(C) Performance:

Shrinking Net Interest Margin: From 3.5% in 2007 to 2% in Q3 2009

Low return on assets: 0.7% (one of the lowest in industry)

Gross NPA: 2.4% of assets (high compared to peer group)

Provision coverage ratio (Provisions to Gross NPA) of 48%. Goes up to 71% if you add technical write-offs to both numerator and denominator (a neat card trick that the RBI has signed off to for all banks)

Capital Adequacy Ratio of 13.2% (on par with industry)

 

(D) Valuation:

FY 2009 PAT at INR 360cr

Expected FY10 PAT of INR 460cr

Available at 5.8 P/E and 4.6 P/E(x)

Comparable banks being Central Bank, Allahabad Bank, Corporation Bank, Bank of Maharashtra

 

(E) Conclusion: NO GREAT SHAKES

While the eastern region is expected to grow, it is not without its risks and banks like SBI already have a sizable presence there.

On the balance of it, this offering looks very dull. Not too cheap compared to peers, nor a great business model. With its poor NPA record, I would rather buy one of the peer group banks than this one (Allahabad Bank seems like the best bet).

  

posted by TEJASVI MOHANRAM on Monday, February 22nd, 2010


Research houses seem to suggest otherwise...there are 2 reports floating around that claim this is available at attractive valuation compared to similar sized PSU banks.

quick response would be appreciated

posted by goldlust Tuesday, February 23rd, 2010


I have read one of them (Prabhudas Liladher). If you read carefully, the offering is not cheap when compared with actual earnings, but only when you compare with FY 10 & FY 11 expected earnings (and I would not waste my time reading into how they come up with these expectations for each bank). And here's the key "the offering looks cheap when compared to the earlier offerings of other PSBs".

I am not sayign Avoid. But I fail to see any long-term value in this company.

posted by Tejasvi_Mohanram Tuesday, February 23rd, 2010


There is one more IPO coming in the market NMDC. Issue open on 10th march 2010 and closes on 12th march 2010. To get the details of it you can download from dalal street investment journal's websites.
www.dsij.in

posted by amanish Wednesday, March 10th, 2010


  • New response

SendClear


Did you find offensive content or language? Report this blog