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IPO Analysis
UNION BANK OF INDIA
ABOUT THE BANK
Issue Opens Aug 20, 2002
Instrument Equity
Pub Iss Size (No.) 18,00,00,000 shares aggregating Rs. 288 crore
Issue Closes Aug 28,2002
Offer Price(Rs) Rs. 16 (Face Value Rs. 10 + Premium Rs. 6)
Minimum Application 200 Shares
Objects of the offer To augment the long term resources of the bank and to meet the future capital adequacy requirements.

Comparison of Union Bank of India With Its Peer Group:

  UBI ANDHRA BANK SYNDICATE BANK SOUTH INDIAN BANK
Net NPAs/Net Advances 6.26 2.45 4.63 6.64
CAR(%) 11.07 12.59 12.12 11.2
Credit-Deposit Ratio 52.07 46.49 52.2 53.83
EPS(Rs.) 8.92* 4.5 8.4 18.42
P/E 1.79* 3.1 1.6 1.9
Book Value Per Share(Rs.) 47 19.6 25.5 76.7
Price/BV 0.34 0.71 0.53 0.46
RONW(%) 18.97 24.7 35.9 25.31
No of Branches 2023 1069 1733 372
Return on Assets(%) 0.71 0.97 0.98 1.07
Business Per Employee (Rs. Cr.) 2.15 1.96 1.55 2.18
Profit Per Employee(Rs. Cr.) 0.01 0.02 0.01 0.02
Int. Income%Avg Working Fund 9.96 10.4 9.97 10.6
Non Int. Income%Avg Working Fund 1.24 1.56 0.96 2.39
Operating Profit/Avg. Working Funds 2.16 2.18 1.22 2.98
Dividend(%) 13.3 14 12 25
*Profit on Sale of Investments was up from 34.35 crore last year to 159.83 crore this year. We feel that this figure is not sustainable in the near future as FY2002 was a year in which most of the banks made windfall gains in trading of govt securities. If on conservative basis we take this figure same as previous year,i.e. 34.35 crore we will have an EPS of Rs. 5.2 and P/E ratio will be 3.08. This makes offer unattractive on P/E front.

The minimum return on increased post offer networth required to maintain pre-offer EPS of Rs. 8.92 on the basis of an issue price of Rs. 16 per share will be 22.56%.

Union Bank of India was founded on and registered on November 11, 1919 as a limited company and subsequently nationalised in 1969.

The bank has huge branch network consisting of 2023 domestic branches and 146 extension counters spread out all over the country. The bank has also opened specialised branches to cater to the needs of Industries, Oveseas Business, Non Resident Indians, Trading and Small Scale Industries.

The bank has undertaken several new business initiatives namely the cash management services, the depository services, the insurance product distribution and gold import.

The bank has commenced the process of networking 500 branches by engaging leading consultants for implementing a centralised core banking solution.

At present, 100% equity is held by Govt. of India, which will come down to 60.8% post issue.(The bank has received an "in-principle" approval for return of capital amounting to Rs 58 crore from the Government of India.)
CONCERNS
The major concern for the bank is its high non-performing assets. The Net NPA as a percent of Advances as on March 2002 is 6.26% .Even in absolute terms the Net NPA has seen an increasing trend. The Net NPA as on March 2002 is Rs 1338 crore.
RECOMMENDATION - AVOID
We feel the public issue price of Rs 16 (P/E 1.79) is expensive considering its quality of assets and its financial performance. The bank is plagaued by high NPAs (6.26% as of March 2002) and high contingent liabilities of Rs 8471 crore. The last financial year was a good year for most of the banks as they were able to make windfall profits out of tresury operations. We should keep in mind that this is a non-recurring item as we are likely to see miniscule figure in FY03(profits from treasury operations in FY03). If we analyse the profits of UBI in FY02, the net profits have in fact declined from Rs 145.94 crore in FY01 to Rs 141.5 crore in FY02, if we exclude profits on sale of investments.

We feel there are better options available in the banking sector for the investors.Some of the peer group companies that we have compared above with UBI have fared well and have better asset quality. In light of the above factors we recommend investors to avoid investing into the issue. We feel the price would come down post-issue as there is generally high interest among investors in subscribing for IPOs. At a P/E of 1.79 based on FY02 earnings, we feel the public issue price is expensive.
Team Moneypore

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