UNIONBANK - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 20 Dec 25, 11:16 pm

Fundamental Rating: 3.4

📊 Financials: Union Bank of India shows moderate fundamentals with ROCE at 6.72% and ROE at 17.1%, reflecting average efficiency in capital utilization. Debt-to-equity is very high at 10.8, typical of PSU banks, indicating a highly leveraged balance sheet. Quarterly PAT improved slightly (₹4,249 Cr vs ₹4,116 Cr), though profit variation is negative (-9.97%), highlighting earnings pressure. EPS stands at ₹23.5, supporting profitability visibility.

💰 Valuation: Current P/E of 6.55 is below the industry average of 7.89, suggesting undervaluation relative to peers. Book value is ₹159, giving a P/B ratio of ~0.97, which is fair. PEG ratio of 0.13 indicates growth is attractively priced. Dividend yield at 3.09% provides strong income support compared to peers.

🏢 Business Model & Advantage: Union Bank operates as a public sector bank with strengths in retail, corporate, and agricultural lending. Competitive advantage lies in government backing, wide branch network, and strong retail penetration. However, profitability pressures and high leverage reduce margin of safety.

📈 Entry Zone: Current RSI at 56.0 suggests neutral conditions. An attractive entry zone lies between ₹140–₹150, closer to support levels and near DMA 200, offering margin of safety.

🕰️ Long-Term Holding: Suitable for long-term investors seeking exposure to PSU banks. Strong dividend yield and undervaluation make it attractive, though earnings consistency and leverage risks must be monitored.

Positive

• ✅ ROE at 17.1% supports profitability
• ✅ P/E (6.55) below industry average (7.89), indicating undervaluation
• ✅ Strong dividend yield (3.09%)
• ✅ Government backing and wide branch network

Limitation

• ⚠️ Weak ROCE (6.72%)
• ⚠️ Very high debt-to-equity (10.8)
• ⚠️ Quarterly profit variation negative (-9.97%)
• ⚠️ EPS modest at ₹23.5 compared to sector leaders

Company Negative News

• 📉 Decline in DII holdings (-0.23%)
• 📉 Quarterly profit variation (-9.97%)

Company Positive News

• 📈 Increase in FII holdings (+0.16%)
• 📈 PAT growth sequentially (₹4,249 Cr vs ₹4,116 Cr)

Industry

• 🌐 PSU banking sector supported by government initiatives and credit growth
• 🌐 Industry PE at 7.89, showing Union Bank trades at slight undervaluation

Conclusion

🔎 Union Bank of India is a government-backed PSU bank with strong dividend yield, undervaluation, and wide branch presence. However, weak ROCE, high leverage, and earnings volatility reduce attractiveness. Investors may consider accumulation near ₹140–₹150 for margin of safety, with long-term holding dependent on sustained profitability and sector reforms.

Would you like me to extend this with a peer benchmarking overlay against Bank of Baroda, Canara Bank, and Punjab National Bank, or a sector rotation basket scan to identify undervalued PSU banking peers for compounding?