Ventural Stock Research Report

Over the past three fiscal years (FY22 to FY24), the company has demonstrated strong financial performance with improved asset quality. Net Profit After Tax surged at 37.7% CAGR from INR 5,232 cr in FY22 to INR 13,648 cr in FY24. This increase was underpinned by consistent growth in Net Interest Income, rising at CAGR of 9.6% from INR 27,786 cr in FY22 to INR 36,570 cr in FY24.

There was a significant improvement in asset quality, with the Gross NPA ratio decreasing sharply from 11.11% in FY22 to 4.76% in FY24, and the Net NPA ratio falling from 3.68% to 1.03% during the same period. The bank maintained a robust Capital Adequacy Ratio (CRAR) under Basel III, which increased from 14.52% in FY22 to 16.97% in FY24. Business growth was evident with Gross Advances, expanding at 8% CAGR from INR 7,16,408 cr in FY22 to INR 9,04,884 Crores in FY24, while Total Deposits grew at a CAGR of 7.5% from INR 10,32,392 cr to INR 12,21,528 cr. CASA Ratio in FY24 at 33.6% was marginally down by 290 bps.

Over FY24–FY27E, we forecast for UBOI to deliver a robust financial performance, with AUM growing at a CAGR of 8.5% to INR 11,55,774 cr. During the same period, the bank’s deposits are projected to increase at a CAGR of 7.6% to INR 15,21,833 cr, with a CASA ratio of around 68%. Interest income is forecasted to rise from INR 99,778 cr to INR 123,877 cr at a CAGR of 7.5%, while NIMs are expected to moderate to approximately 2.7% from around 2.9% in FY24.

Additionally, PPoP/Net Profit are anticipated to increase from INR 28,211/ 13,648 cr, respectively, to INR 30,338/14,823 cr representing CAGRs of 7.6%/ 9.6%, respectively. Asset quality should improve at a measured pace, with GNPA ratio declining by 122 bps to 3.5% and NNPA ratio remaining flat over the same period. The provision coverage ratio (PCR) is likely to reduce from 79% to 75%.

Business Model: Interest income from loans and advances, supported by non interest income from fees, commissions, and treasury operations. Valuation Call: We initiate coverage with a BUY rating and a price target of INR 161 (1.0X FY27E P/BV), representing an upside of 33% from the CMP of INR 121 over the next 24 months.

Risks to Estimates:
1. Slower-than-anticipated economic growth,
2. A sharp rise in interest costs, and
3. Potential deterioration in asset quality.