United Bank of India

United Bank of India

United Bank of India

United Bank of India

United Bank of India

United Bank of India

United Bank of India

United Bank of India

United Bank of India logs tepid gains on debut

Settles at Rs 68.80 on BSE, a 3.93% premium over the IPO price

Shares of the state-run United Bank of India (UBI) settled at Rs 68.80 on BSE, a 3.93% premium over the initial public offer price of Rs 66.

The stock debuted at Rs 77, a 16.66% premium over its initial public offer price of Rs 66 per share. The stock hit a high of Rs 77 and low of Rs 68.10

The counter clocked volume of 2.82 crore shares on the BSE.

The state-run lender had priced initial public offer (IPO) at Rs 66 per share, at the upper end of the Rs 60-66 per share price band, raising Rs 324.98 crore. The bank offered the shares to retail investors and employees at 5% discount to the issue price.

The bank's IPO was subscribed 33.38 times and garnered bids for 166.88 crore shares as against 5 crore shares on offer. The bank's IPO remained open for bidding between 23 and 25 February 2010.

The UBI IPO saw high demand from institutional investors. The portion reserved for qualified institutional buyers (QIB) category was subscribed 47.08 times while that of non-institutional investors was subscribed 39.15 times. Retail investor portion was bid 9.80 times. However, employees quota remained undersubscribed and got bids for 13.25 lakh shares as against 25 lakh shares reserved for them

UBI has its presence predominantly in the north and north-east India. Following the IPO, the government's stake in the Kolkata-headquartered bank has declined to 84.20%, from 100%.

The bank would be utilising the IPO proceeds to expand its balance sheet and augment capital base

United Bank of India Subscription Details

Sr.No.	Category	No.of shares offered/reserved	No. of shares bid for	No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)	28500000	1341847100	47.0824
1(a)	Foreign Institutional Investors (FIIs)		701370100
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)		478519100
1(c)	Mutual Funds		161957900
1(d)	Others		0
2	Non Institutional Investors	4750000	185974500	39.1525
2(a)	Corporates		127182800
2(b)	Individuals (Other than RIIs)		41695900
2(c)	Others		17095800
3	Retail Individual Investors (RIIs)	14250000	139704100	9.8038
3(a)	Cut Off		126078900
3(b)	Price Bids		13625200
4	Employee Reservation	2500000	1325200	0.5301
4(a)	Cut Off		1218700
4(b)	Price Bids		106500

United Bank of India IPO heavily bid

Issue subscribed nearly 27 times

The initial public offer (IPO) of state-run United Bank of India (UBI) received strong response from investors. The IPO was subscribed nearly 27 times by 15:00 IST on the last day of the issue today, 25 February 2010. The IPO got bids for 134.92 crore shares compared with 5 crore shares on offer. The price band for the IPO is Rs 60 to Rs Rs 66 per share. The bank is offering a discount of 5% to retail investors.

Domestic institutional investors (DIIs) have made a beeline for the UBI IPO. DIIs, excluding mutual funds, put in bids for 9.67 crore shares by the end of the second day of the issue on Wednesday, 24 February 2010. However, there was not a single bid from mutual funds. Foreign institutional investors (FIIs) put in bids for 2.09 crore shares.

The IPO comprises of a net issue of 4.75 crore equity shares of a face value of Rs 10 each to the public, and a reservation of 25 lakh equity shares for subscription by eligible employees.

United Bank of India (UBI) has its presence predominantly in the north and north-east India.

United Bank of India IPO Note

United Bank of India IPO Note

United Bank of India IPO Review

Poor track record and quality

The offer valuation has been aligned with the valuation at which other poor quality PSU banks are trading

United Bank of India was founded in 1950, with the merger of four East India based banks: Commilla Banking Corporation, Comilla Union Bank, Hooghly Bank and Bengal Central Bank. The bank has its presence predominantly in the north and north-east India. A wholly owned bank of government of India (GOI), United Bank is coming out with an Initial Public Offer (IPO) with a issue of 5,00,00,000 crore equity shares of Rs 10 each in a price band of Rs 60-Rs 66 per share through the book building process.

The IPO comprises a net issue of 4,75,00,000 equity shares of face value Rs 10 each to public and reservation of 25,00,000 equity shares for subscription by eligible employees (in the employee reservation portion). The bank has offered a 5% discount on the price band fixed, for the retail Individual bidders and has allocated 30% of the net issue for them. On the other hand, a major portion, i.e., 60% of the net issues is to be allocated to qualified institutional buyers and the remaining 10% to non-institutional bidders. After the issue, the shareholding of GOI will come down to around 84.20%.

The bank adjusted accumulated losses of Rs 278.44 crore against capital in 2006. Further, the GOI had allowed the bank to reduce its share capital by Rs 1266 crore to Rs 266.43 crore from Rs 1532.43 crore in 2008. Post-issue, the equity capital of the bank will be at Rs 316.43 crore.

The objective of the issue is primarily to augment bank's long-term resources in line with estimated growth in assets and maintain a comfortable capital adequacy ratio (CAR) in line with its estimated growth in assets. The bank's current capital adequacy ratio was 12.93% in the quarter ended September 2009 as against the RBI mandated 9% and GOI stipulation of 12%. Post IPO, the CAR of the bank would go up to 13.75%- 3.84% depending on the issue price.

Financial & Business Analysis:

For the year ended March 2009 (FY 2009), United Bank reported a 20% rise in the business mix to Rs 90264 crore with a 27% rise in advances at Rs 35728 crore and a 16% increase in deposits to Rs 54536 crore. On the financial front, the bank reported scintillating results with 147% jump in net profit to Rs 358.55 crore on the back of a 28% increase in the net interest income to Rs 1161.51 crore and a 10% dip in the provision and contingencies to Rs 259.59 crore.

For the half-year ended September 2009, the bank reported a net profit of Rs 231.10 crore on the back of Rs 618.85 crore of NII. Total business surged by 41% to Rs 105959 crore, powered by a 43% rise in deposits to Rs 64640 crore and a 39% increase in advances to Rs 41219 crore. NIM stood at 2%, the lowest among its peers. Cost of deposits was 6.47%.

The bank plans to increase the loan and advances portfolio to the retail sector by simplifying the current processes, launching new products and services and developing distribution channels.

The CASA (current account and savings account) deposits/ total deposits has witnessed a downtrend since FY 2007 from 42% to 38.6% in FY 2008, 37.8% in FY 2009 and 33.97% in H1 FY 2010.

The bank has not achieved the target of 18% of adjusted net bank credit to the agriculture sector and 10% to MSME in the past three fiscals. However, it has managed to decrease the shortfall from 6% in FY 2007 to 4.05% in FY 2009 for the agricultural sector and from 2% in FY 2007 to 0.72% in FY 2009 for MSME sectors.

Asset Quality:

The asset quality of the bank witnessed deterioration in FY09. The gross NPA percentage increased to 2.86% in FY 2009 as against 2.70% in FY 2008. But it since eased to 2.48% as of September 2009. The net NPA percentage also increased to 1.48% in FY 2009 as against 1.10% in FY 2008, but eased to 1.30% in H1 FY 2010.

The provision coverage ratio declined from 59.8% in FY 2008 to 48.5% in FY 2009 and came down further to 48.1% in H1 FY 2010. The restructured assets as percentage of advances have also increased from 1.08% in FY 2008 to 4.86% in FY 2009 and 5.98% in H1 FY 2010.

The provision coverage ratio was below the RBI mandated 70% and is also the lowest among its peers. As a result, it has to step up provisions in the next two-three quarters so as to reach 70% levels before September 2010.

Branch Connectivity & Performance:

On the technology front, the bank has implemented 100% core banking solution (CBS) across all branches to facilitate centralized operations through a central database. The bank has a wide presence, though it is concentrated in the rural (40%), semi urban and urban regions (41%), particularly in the east and north-east India. A sizeable portion (67.4%) of the deposits is from the eastern region of India.

The bank has added 54 new branches during the ten months ended January 2010, taking its branch network to 1,505 and 267 ATM's in 28 states and 4 Union Territories. Besides, the bank has four associate regional rural banks: Bangiya Gramin Vikash Bank, Assam Gramin Vikash Bank, Tripura Gramin Bank and Manipur Rural Bank.

The business per branch of the bank has jumped from Rs 53.62 crore in FY 2008 to Rs 62.21 crore in FY 2009 and Rs 72.92 crore for H1 FY 2010. Also, the net profit per branch has increased from Rs 10.36 lakh in FY 2008 to Rs 24.71 lakh in FY 2009 and Rs 31.81 lakh in H1 FY 2010. Still, these productivity parameters are low when compared to its peer group banks.

Strengths

* CASA at 33.97% as of September 2009 is relatively better compared to regional PSU banks like Vijaya Bank (23.5% as of December 2009), Indian Bank (30.96% as of September 2009), and Indian Overseas Bank (30.8% as of September 2009).
* Investments constitute 35.4% (including non-SLR) of deposits as of September 2009 as against the RBI prescribed minimum of 24%. The bank can take care of increase in demand for advances without over dependence on incremental deposits in the short term, by trimming down investments, if required.

Weakness

o Track record is not encouraging. NII is in the Rs 900-Rs 1100 crore range for the past five years. Net profit fell between FY 2005 to FY 2008 and bounced back in FY 2009. Its FY 2009 net profit was Rs 358.55 crore as against FY 2005 profit of Rs 300 crore.
o Poor asset quality and high restructured assets as percentage of advances.

o Very low provision coverage of 48% (compared to the RBI' s stipulation of a minimum 70%), which needs to be stepped up in the next few years, leading to sub-optimal net profit for the next few quarters.

o NIMs are one of the lowest amongst peers.

o There is asset liability mismatch with longer term loans of over 5 years accounting for about 31% of the total advances, exacerbated by lower term deposits and relatively lower CASA.

o Nearly 82% of branch network is concentrated in the eastern and north-eastern regions of India.

Valuation:

United Bank's annualized EPS for H1 FY 2010 on post-IPO equity works out to Rs 14.6. Considering the higher price band, post-IPO book value (BV) is Rs 98 per share and adjusted BV (ABV) Rs 81.2 per share. At a lower price band of Rs 60 per share, post IPO BV is Rs 97 per share and ABV Rs 80.2 per share

At the price band of Rs 60 to Rs 66 (without considering the discount of 5% to retail investors), P/E is 4.1 to 4.5. Comparable banks like Dena Bank, UCO Bank, Vijaya Bank are currently trading at P/E of 4-4.6 times annulaised H1 FY 2010 EPS. Even better placed Andhra Bank is trading at P/E of 4.6.

P/BV at both the bands is 0.6 and 0.7, while P/ABV 0.7 and 0.8, respectively. Most of the comparable banks are trading at around P/ABV of 0.8-1.0. Only Andhra Bank and Indian Bank, which are relatively better placed than United Bank, are trading at P/BV of 1.2.

United Bank of India IPO Analysis

Investors can refrain from subscribing to the United Bank of India's public offer. Though the offer is modestly priced, the bank doesn't appear to be a preferred exposure in the banking space, where there are a large number of other listed options. At the upper end of the price band of (Rs 66), the stock is trading at 4.37 times its trailing one year earnings.

This includes a huge proportion of income as well as write-backs from the treasury portfolio, as the debt market had a good run for the year ended September 30, 2009.

The price-to-adjusted book value post dilution (excluding the preference shares) works out to 0.9 as of September 30, 2009.

While this valuation is at a discount to peers, it may be justified as the bank may continue to lag its peers in terms of earnings performance. Banks with similar valuations such as Allahabad Bank and Andhra Bank have better operational parameters and may deliver better returns, going forward.

Choppy earnings

The bank suffers from low credit-deposit ratio (63.7 per cent), high cost-income ratio (57 per cent) and low net interest margins (NIMs of 2.4 per cent ). A low provision coverage (48 per cent) is also a concern and this may need to be bolstered, given RBI norms.

These also depressed the return on net worth of the bank which stood at 14 per cent as of March 2009. The profits of the bank were volatile during the period 2004-09 despite the bank witnessing a 32 per cent compounded annual growth in advances. Choppy earnings may continue until the bank reduces the investment-deposit ratio (36 per cent ).

United Bank of India, a Kolkata-headquartered bank, has 1,505 branches with predominant East and North-East presence.

The total business (deposits and advances) of the bank stood at 1.05 lakh crore as of September 2009. Advances grew by 32.8 per cent compounded annually for the period 2004-09 albeit on a low base.

This helped the bank to improve its credit-deposit ratio to 65.5 per cent; however this is still low compared with peers.

The current offer proceeds are to be used to bolster the capital adequacy which is necessary to fund future loan book growth. The capital adequacy of the bank stood at 12.93 per cent as of September 30 2009. The current fund raising plans (including an additional Rs 550 crore infusion from the government through preference share allotment) would bolster the capital adequacy base to more than 15 per cent.

Post-offer, the government's stake would fall to 84 per cent. Government stake is well above the mandatory 51 per cent stake, which may allow the bank to raise capital from time-to-time, which many other peers cannot do.

Historically volatile treasury income has impacted the bank's earnings and this will continue to be a factor in the quarters ahead.

Over a third of this investment portfolio is exposed to interest rate risk, which is a significant proportion compared with its peers. With a modified duration of 2.9 years, it may have to provide as much as Rs 2.47 crore for every one basis point increase in bond yields.

CASA advantage

High concentration in the Eastern region, where the demand for credit is low but the deposit inflows are high, has helped United Bank build a strong low-cost deposit base. Low-cost deposit base stood at 34 per cent as of September 2009, high compared with the nationalised banks' average.

Even though the cost of funds is low, the bank has a relatively low net interest margin (2.4 per cent for the half year ended September 2009) compared with most peers. While the December quarter may see slight improvement in NIMs, the recent hike in CRR would pressure margins. While the bank has done well to bring down the gross NPA ratio from 4.66 per cent in March 2006 to 2.5 per cent in September 2009, the proportion is high.

With a provision coverage of 48 per cent, the net NPA ratio stood at 1.3 per cent. The net NPA ratio of the bank is higher than the nationalised bank average. We expect asset quality slippages in line with the banking industry in the December quarter.

Total restructured assets of the bank is around 5.3 per cent of the total advances. Further asset quality slippages can be expected from the restructured loans.

While its current operational parameters are not impressive, United Bank has immense scope to improve its operational parameters over the medium to long term.

Investors should watch for such improvement before considering investment.

United Bank of India sets IPO price band at Rs 60-66 a piece

IPO remains open for bidding between 23 and 25 February 2010

State-run bank United Bank of India has reportedly set a price band of Rs 60- 66 per share for initial public offer (IPO). The IPO remains open for subscription between 23 and 25 February 2010.

United Bank of India is looking to raise Rs 350 crore by selling 5 crore equity shares of Rs 10 each in the proposed IPO, reports added.

Following the IPO, the government's stake in the Kolkata-headquartered bank would come down to 84.20%, from the current level of 100%.

Credit rating agency, CARE has assigned grade '4' for the IPO, indicating above average fundamentals.