Following the recent rally in banking stocks, we have reviewed our price targets in context of our earnings estimates and recent developments.
Following our review, we are placing Union Bank of India (UBI) under Hold as the current market price (Rs162) is very close to our price target of Rs163.
Besides this, in the light of the recent revision in the guidelines for treatment of floating provisions and the estimated restructuring done by the bank in Q4FY2009, UBI seems to be rightly valued relative to its peers.
At the current market price of Rs162, the stock trades at 1.2x FY2009E and 1.0x FY2010E book value per share.
In the light of the above two factors, we believe, at the current valuations UBI is rightly priced and the fundamentals do not warrant any additional valuation premium.
Hence, we downgrade the stock to HOLD while maintaining our price target of Rs163 and would revisit our outlook following Q4FY2009 results.