Union Bank - Buy, Sell, or Hold Now, Based on Q1 Results?

Union Bank of India, India’s sixth largest public sector bank by revenue, has delivered good returns to investors during several time-frames in its listed history. But what is the outlook now after first quarter results?

Union Bank’s Q1 revenue has soared year-on-year from Rs. 4120.66 crore to Rs. 5399.68 crore, which is a 31.04% robust jump. The quarter-on-quarter growth is from Rs. 5215.81 crore, which is a modest 3.53% increase.

The year-on-year Q1 net profit of Union Bank dipped from Rs. 601.42 crore to Rs. 464.42 crore, which is a troubling 22.78% dip. Sequential profit has also dipped from Rs. 597.57 crore, which is also a disappointing 22.28% dip.

Union Bank's (BSE: 532477, NSE: UNIONBANK) net profit margin (NPM) of the core business has taken a hit on an year-on-year basis, from 16.32% to 9.45% now.

Exceptional items at Union Bank that affected profits this time include provisioning for NPAs,  pensions, gratuity etc, with indication that pressure from such items would continue.

Union Bank of India's Net NPAs stood at 1.32%, up from 1.19% in the previous quarter.

Return on Assets fell from 1.05% to 0.86% sequentially, and from 1.22% year-on-year. Return on Equity at Union Bank for FY’11 was 16.31%, which is quite healthy if not outstanding.

Since Union Bank's current valuation is at 1.70 times the book-value, new investors should wait for the upcoming quarters to see whether the strong performance in revenue eventually permeates to a turnaround in profit.

For existing investors of Union Bank, it is a ’hold’ or ’sell’ depending upon the entry price, and considering the tough interest regime.