Hidden Gem - Union Bank of India

Analysts' Positive Outlook on Asset Quality and Profitability Brokerage firms continue to remain positive on Union Bank of India after the state-run lender hosted its analyst meet, attended by multiple leading brokerage firms. Majority of the brokerages see a meaningful upside in the stock, suggesting up to 34 per cent potential gains in the counter. Brokerages are swearing by the asset quality outlook of the lender with a focus on delivering profitable growth. However, they remain watchful on near-term margins and cautious over sub-par growth, which is an irritant. Expectations for Loan Growth, Margins, and Return Ratios Loan growth is expected to trend at around 11%, aided by healthy growth in the RAM segment. Margins are also expected to remain in the guided range of 2.8-3 per cent despite the rate cut, supported by higher MCLR-linked loans. Analysts estimate loans to grow at 10 per cent over FY25-27E, with RoA/RoE at 1.1 per cent/15.5 per cent by FY26E. Recent Financial Performance and Valuation

reported a 28.24 per cent YoY rise in its net profit to Rs 4,604 crore during the quarter ended December 31, 2024 (Q3FY25), driven by healthy growth in non-interest income. The public sector lender's net interest income (NII) grew marginally by 0.79 per cent YoY to Rs 9,240 crore, while its net interest margin (NIM) moderated to 2.91 per cent in the reported quarter. Stable margins, lower opex, and moderation in credit costs led to strong profitability for Union Bank of India, with its RoA coming at 1.3 per cent. However, some brokerages remain cautious, citing intermittent asset quality hiccups and a sharp slowdown in credit growth.