Union Bank shares surge on successful QIP, low valuations, and recovery

The shares of Union Bank have experienced a significant surge, rising 26% within the last month and 65% over the past six months. This uptick aligns with the broader increase in Public Sector Bank (PSB) stocks, which have risen between 18-52% over the same period.

The bank’s recent success is largely attributed to a successful Qualified Institutional Placement (QIP) of ₹5,000 crore (INR100 crore = approx. USD12 million), low valuations, and a recovery from losses incurred during FY18-20. The bank’s Return on Assets (RoA) currently stands at 0.7%, and its Return on Equity (RoE) is at 12%. These figures are projected to reach 0.9% and between 14-15% for FY24-26E, respectively.

Emkay Global maintains a ‘Hold’ rating on Union Bank with a target price of ₹95. However, the bank’s stock currently trades at ₹111.15, exceeding Emkay Global’s target price.

The bank’s Common Equity Tier 1 (CET 1), a key measure of a bank’s financial strength from a regulator’s point of view, stands at 12.3% pre-money. Furthermore, following an HR revamp, the bank’s valuation gap with its peers is now at 0.9x.

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