The Hindu Business Line : UTI Bank: Buy

Ms Mona Singh (Jassi) along with Ms Manju Srivatsa, Senior Vice-President Retail Banking UTI Bank (Right) launching Smart Privilege, a Special bank account designed for women, in New Delhi recently. - Anu Pushkarna

AN INVESTMENT can be considered in UTI Bank. Given the growth recorded by the bank in the past several quarters and the continuing momentum, the stock's valuation is attractive.

The bank's increasing thrust on the retail segment and a stronger focus on non-fund based banking are likely to ensure healthy growth over the next few quarters. The stock trades at 17 times its trailing 12-month earnings.

UTI Bank has over the last few years recorded impressive growth in business. For instance, net advances rose 75 per cent in the latest quarter, outpacing the industry average of 33 per cent. The net interest income for the quarter rose by over 40 per cent driven largely by the robust growth in advances and improved margins.

Reduction in the cost of funds, largely because of the increasing share of low-cost deposits, helped the bank improve its net interest margin; the share of low-cost deposits rose by four percentage points to 35 per cent in Q2. If the bank expands its low-cost deposit base through its ongoing retail banking initiatives, there could give a strong push to its profitability.

UTI Bank, with the third largest ATM network among banks in India, is well placed to leverage this delivery channel for tapping low-cost deposits.

The bank has improved on its long-held advantage of a low proportion of non-performing assets.

Fee-based incomes have received a boost with the services offered to high net worth individuals emerging a key driver, especially over the past year. The bank maintained its status as a dominant player in placement and syndication of debt; revenues from this segment recorded a robust growth of 74 per cent in the July-September quarter.

It now plans to add wealth management services to its products portfolio, and the launch of a credit card is in the pipeline. If these measures materialise, it could bolster the growth in fee income.

Rising income levels and demographical changes have brought new opportunities for banks in India, particularly in the last few years.

As the demographically-induced shift is structural, it is likely to sustain during the medium term, and this constitutes the rationale for growth in retail lending.

Competition, which is likely to intensify further, may, however, put some pressure on yields on advances. Like all others, UTI Bank has been relying on a retail thrust to deliver growth and it has paid off. That it has substantial room for further growth is evident from the fact that the retail business accounts for only about 30 per cent of the advance pie. UTI Bank can continue to rely on this segment without any concern of over-exposure.

The retail focus will also have a spin-off effect in the form of robust growth in deposits.

In terms of valuations, UTI Bank is trading at a price-to-book value of about 2.5 times its trailing 12-month earnings. This is at a discount to its closest peer in the private sector — HDFC Bank — which is trading at a price-to-book value of 3.5-4 times.

This apart, even on several key profitability parameters, the UTI Bank stock appears attractive, strengthening the case for investment.

More Stories on : Stocks | Recommendation | Private Banks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page