Home Investment Memo: CUB

Investment Memo: CUB

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Our Rating: SELL

Mehabe score: 1
G Factor: 3
Piotski Score: 7
The stock has a rating SELL. The mehabe team score is reflective of its fundamental and technical merits. A rating above 8 is considered good buy. The stock has a G-Factor of 3 and Piotski score of 7.

Description

Union Bank Limited is a banking company. The Bank’s segments include Treasury, Corporate and Wholesale Banking, Retail Banking and Other Banking Operations.(Source : Company Web-site )

Main Points

Ratios
Capital Adequacy Ratio – 17.39%
Net Interest Margin – 4.16%
Gross NPA – 2.94%
Net NPA – 1.47%#
CASA Ratio – 27.49%Site: CUBMain Symbol: CUB

Price Chart

Market Cap: Rs 11,322 cr Price: 153.0 Trading pe: 19.1x
Book-value: 79.1/share Div yield: 0.33 % Earning yield: 5.81%
Face-value: 1.00/share 52week high: 200.00 52week low: 116.10

Technical Analysis

  • Stock trades at 153.0, below its 50dma 160.8 and below its 200dma 164.36. The stock remains bearish on technicals
  • The 52 week high is at 200.00 and the 52week low is at 116.10

Price Chart

P/E Chart

Sales and Margin

Strengths

Weakness

– has low interest coverage ratio.
-The company has delivered a poor sales growth of 7.03% over past five years.
-Tax rate seems low
– has a low return on equity of 11.56% for last 3 years.
-Contingent liabilities of Rs.8564.17 Cr.
– might be capitalizing the interest cost
-Dividend payout has been low at 5.62% of profits over last 3 years

Competition

– The industry trades at a mean P/E of 19.5x. Kotak Mah. Bank trades at the industry’s max P/E of 35.42x. CUB trades at a P/E of 19.1x
– Industry’s mean G-Factor is 3.5 while the mean Piotski score is 7.0. CUB has a G-Factor of 3 and Piotski scoreof 7.
– Average 1 month return for industry is -1.6%. The max 1- month return was given by ICICI Bank: a return of 6.67 %

Quarterly Results

  • Sales for period ended Jun 2021 is Rs 997.0 cr compared to Rs 1049.0 cr for period ended Jun 2020, a fall of 5.0%
  • Operating Profits reported at Rs 430.0 cr for period ended Jun 2021 vis-vis 399.0 for period ended Jun 2020 .
  • Operating Margins expanded 509.3 bps for period ended Jun 2021 vis-vis Jun 2020 .
  • The EPS for Jun 2021 was Rs 2.34 compared to Rs 1.5 for previous quarter ended Mar 2021 and Rs 2.09 for Jun 2020

Profit & Loss Statement

Profit&Loss Comments

  • Company reported sales of Rs 4083.0 cr for period ended TTM vis-vis sales of Rs 4135.0 cr for the period ended Mar 2021, a fall of 1.3%. The 3 year sales cagr stood at 2.7%.
  • Operating margins shrank to -33.0% for period ended TTM vis-vis 76.0% for period ended Mar 2021, contraction of 10900.0 bps.
  • Net Profit reported at Rs 612.0 cr for period ended TTM vis-vis sales of Rs 593.0 cr for the period ended Mar 2021, rising 3.1%.
  • Company reported a poor Net Profit CAGR of -3.6% over the last 3 years

Balance Sheet Statement

Cash Flow Statement

Cash Flow comments

  • CashFlow from operating activities was positive.

Sales Growth

Profit Growth Statement

Profit Growth Statement

Stock Price CAGR

Return of Equity

General Comments

– The company has had stable/constant Return on Equity (RoE) metric. The RoE on Last Year basis was 11.0% compared to 12.0% over the last 3 Years.
– The stock has given a return of 29% on a 1 Year basis vis-vis a return of -4% over the last 3 Years.
– The compounded sales growth on a TTM bassis is -1% vis-vis a compounded sales growth of 7% over the last 3 Years.
– The compounded profit growth on a TTM basis is 24% vis-vis a compounded profit growth of 0% over the last 3 Years.

Ratios

Shareholding Pattern

– FII shareholding has remained largely constant. The Jun 2021 fii holding stood at 17.15% vis-vis 18.02% for Mar 2021
– Public shareholding has remained largely constant. The Jun 2021 public holding stood at 41.2% vis-vis 42.89% for Mar 2021

Conclusion

– – has low interest coverage ratio.
-The company has delivered a poor sales growth of 7.03% over past five years.
-Tax rate seems low
– has a low return on equity of 11.56% for last 3 years.
-Contingent liabilities of Rs.8564.17 Cr.
– might be capitalizing the interest cost
-Dividend payout has been low at 5.62% of profits over last 3 years

  • Fundamentally, the stock remains weak. The business fundamentals are on shaky ground. Weak near term results have dampened and questioned business drivers. We suggest to wait for a upturn in business performance.
  • Technically, the stock reflects the poor fundamentals. The stock remains below its 50 DMA 160.8 and is trading at 153.0. It has shown near term lack of bullish momentum. We suggest to observe price action. However as investors, who like to avoid timing the markets, we suggest to avoid the stock
  • Thus, overall, we retain a STRONG SELL.

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