Q2FY19's main PPP was online, and it reported a Rs.4.4 billion ARP against our expected loss of Rs. 1.6 billion, mainly due to lower provisions (the hedge was flat). , at regular intervals). Like most commercial banks, core PPOP performance (up 15% YoY) stabilizes and, with improved pricing power, PPOP growth of 10% for FY 19F is possible . The weakest link in Union Bank remains its lower hedge at 51%, combined with its low capital position of CET-1 at 7.5%. Management acknowledges that the bank is lagging behind the hedge and that, with a 7 to 8% growth aspiration, it poses a risk of significant dilution.
We take into account Rs 50 billion of equity leading to a dilution of 50% over the years 19-20F. Given the ramp-up of the hedge in the coming quarters, we expect Union Bank's ROE to return to 10% by F21. With an improved PPoP outlook for corporate banks and low valuations of <0.5x the adjusted 20 September pound, we are maintaining our purchase rating, with a lower TP of 90 based on 0.6 x the book of September 20th (29% implicit increase); but the dilution risk remains significant and we therefore prefer relatively AXSB IN / ICICI IN / SBIN IN.