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Most PSB stocks have tracked an up-move for a while now, on better growth/asset-quality outcome and the latest capital-positive investment guidelines. Union Bank too has benefited from the overall positivity, in addition to its recent effective attempt to boost capital via a fruitful QIP (Rs50bn@Rs86.6/sh), leading to an improving return profile; relatively cheap valuations (pre up-move) have led to sharp gain (12% in the past week).

Union Bank’s has been a huge turnaround story among PSBs recovering from 3 straight years of losses (FY18-20) caused by forced merger of smaller PSBs and thereafter the hit form Covid. Bank logged healthy RoA/RoE of 0.7%/12% in FY23; it will clock FY24-26E RoA/RoE of 0.9%/14-15%, on better growth/contained provisions. Bank has undertaken a major Management/HR revamp, strengthening its retail/digital banking, which should help it capture the new-age lending opportunity. Once capital-starved, it has now emerged as one of the well-capitalized banks (CET 1@12.3% pre-money in 1Q) and should get further boost (of 85bps) from the latest QIP. Post the recent up-move, Bank’s valuation gap (at 0.9x; BOB too at 0.9x) with peers has largely shrunk. Currently, we have a HOLD on the bank; we will revisit our rating/TP, after better clarity on growth plans post the QIP.