Extending its bearish trend, shares of Union Bank of India have dropped 4.46% to ₹74.90 apiece in Friday's trade. The stock has been falling in the last four trading days. However, the stock is up by 42% in the last three months, and it has risen nearly 101% over the last six-month period, moving from ₹37.15 apiece to ₹74.90.
In 2022, the stock logged an 86 percent return, outperforming the Nifty 50 Index by 82%, which returned 4% during the same time period. Furthermore, on December 14, 2022, the stock reached a four-year high of ₹96.40.
Despite the stock having generated larger gains, brokerage firms are maintaining their bullish stance on the stock following the bank's solid earnings.
On January 20, Union Bank of India reported a 107% year-on-year increase in net profit to ₹2,245 crore for the December quarter, owing to lower provisions and margin expansion. The total income increased to ₹24,154 crore in Q3FY23 from ₹19,454 crore in the year-ago quarter.
The net interest income of the bank jumped 20% YoY to Rs. 8,628 crore on the back of loan growth and a 0.21 percent expansion in the net interest margin to 3.21 percent.
The non-interest income grew 29.58 per cent to ₹3,271 crore and was helped majorly by the recoveries from the written-off assets at ₹1,090 crore, which is a 204 per cent jump from the ₹358 crore in the year-ago period.
On the asset quality front, the bank recorded an improvement, with gross non-performing assets declining to 7.93 percent, as compared to 11.62 percent at the end of the third quarter of the previous fiscal year.
Domestic brokerage firm, Motilal Oswal keeps its "buy" rating on the stock with a target price of ₹100 apiece, signalling an upside potential of 33.51% from the bank's previous closing price.
Karur Vysya Bank
Shares of Karur Vysya Bank, a private sector lender, have risen 80 percent in the last six months, climbing from ₹57.95 apiece to the present level of ₹104.40. Over the last one year, the stock has more than doubled investor wealth by returning almost 122%.
The stock is currently trading 150% higher from its 52-week low of ₹41.8 apiece. Also on December 15, 2022, the stock hit a five-year high of 116.2.
The stock began its bull run in July last year, after the bank's net profit more than doubled in the first quarter of the current fiscal year. The bank continued the same momentum in the following quarter and reported a 51% YoY rise in net profit.
In the latest December quarter, the private sector bank reported a 56 percent YoY jump in profit at ₹289 crore on the back of a rise in interest income and a decline in bad loans.
The net interest income of the bank increased to ₹1,695 crore as against ₹1,405 crore in the same quarter a year ago. The bank showed improvement in the gross non-performing assets ratio as it declined to 2.66 percent in Q3FY23 from 6.9 percent in the year-ago period. The net NPA ratio also drops to 0.89 percent from 2.55 percent.
Following the bank's strong earnings, brokerage firm, ICICI Securities retained its "Add" call on the stock and raised the target price to ₹120 per share from ₹100 earlier.
Q3FY23 financial performance reflects the successful execution of redefined business strategies by the new management, said the brokerage.
The bank took an aggressive approach to cleaning up its balance sheet, as reflected in loan write-offs amounting to Rs. 750 crore during Q3 FY23. Of the total write-off, Rs.600 crore was in the corporate segment, Rs.140 crore in commercial banking and a negligible Rs.10 crore in the retail and the Agri segment, it added.
Likewise, HDFC Securities also maintained its "ADD" call on the stock with a target price of ₹130 apiece. The brokerage said that the bank's earnings were ahead of their estimates.
"KVB is well-positioned to deliver targeted return ratios through efficiency and productivity gains. "However, in our view, as a mid-sized bank with a limited appetite for market borrowings, KVB needs to shore up its pace of deposit mobilisation to fuel its loan growth aspirations," said HDFC Securities.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.