Multibagger banking stock rose 239% in two years, trading near 52-week high; what’s next?

Shares of Union Bank of India have delivered 137% returns from their 52-week low hit in March last year. The stock of the public sector bank fell to a 52-week low of Rs 60.32 on March 28, 2023. Union Bank of India shares closed at Rs 142.85 in the last session on BSE. The stock surged 77% in a year, making it among the top performers in the PSU banking space.   

In two years, the state-run bank delivered 239% returns in investors.  

The stock has a PE of 7.97, signaling it is undervalued compared to the sectoral PE of 12.91. It has a price to book ratio of 1.45.   

Union Bank stock opened flat at Rs 139.35 on Wednesday. It hit an intraday high of Rs 143.15 on BSE. Total 34.19 lakh shares of the bank changed hands amounting to a turnover of Rs 47.98 crore on BSE. Market cap of the bank rose to Rs 1.05 lakh crore.      

Union Bank has a one-year beta of 0.7, indicating low volatility during the period.  

In terms of technicals, the relative strength index (RSI) of the stock stands at 74.4, signaling the stock is trading in the oversold zone. Union Bank shares are trading higher than the 10 day, 20 day, 50 day, 100 day, 200 day moving averages.  

Motilal Oswal has maintained its target price of Rs 165 for the lender post Q3 earnings.  

The lender announced its Q3 earnings on January 20.  

“Barring some increase in SMA-0 bucket, asset quality was healthy. A consistent fall in restructured assets (1.6%) provides a healthy outlook on asset quality. We largely maintain our earnings estimates and expect FY’25 RoA/RoE of 1.1%/17.6%. We reiterate our BUY rating with a revised target price of Rs 165 (premised on 1.1x Sep’25E ABV),” said Motilal Oswal.  

Anand Rathi in an earnings preview assigned a target of Rs 166.  

“Higher business growth combined with stable margins and favourable credit costs would lead to strong profitability in the medium term. We estimate a 1% plus RoA through FY24-26. Our Rs 166 target price stems from the two-stage DDM model. This implies a 1x P/BV multiple on its FY26e book.”  

Lumpy slippages in the corporate book; less-than-expected credit growth are the risks that the bank is likely to face, added Anand Rathi.  

Union Bank reported a 60% rise in Q3 profit at Rs 3,590 crore from Rs 2,245 crore in the year-ago period. Gross non-performing assets (NPA) in Q3 stood at 4.83 per cent. 

Interest earned in Q3 came at Rs 25,363 crore. Provisions and contingencies in the September quarter came at Rs 1,748 crore in Q3 FY24 against Rs 3,036 crore in the corresponding period last year. 

Disclaimer: Business Today provides stock market news for informational purposes only and that should not be construed as investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.    

 

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