Morgan Stanley is bullish on Union Bank of India (UBI) and maintains ‘overweight’ rating on the stock with a target price of Rs 220.

According to Morgan, interested investors can purchase the stock on declines with a strict stop loss of Rs 150.

The bank’s shares, on Friday (May 9), closed the week at Rs 162.7001.60, down 2.66%, on the Bombay Stock Exchange (BSE). The total volume of shares traded at the BSE was 123.405. Current EPS and P/E ration stood at 27.46 and 5.93 respectively. The share price has seen a 52-week high of Rs 234.8 and a low of Rs 106.1 on BSE.

As on March 2007-08, the bank has maintained attractive valuations and much safer balance sheet as compared to other PSU banks.

UBI has posted a net profit increase of 128 per cent at Rs 521 crore for the quarter ended March 31, 2008 as compared to Rs 228 crore posted during the same period of the last year.

The bank’s total income increased 24.70 per cent at Rs 2,913 crore as against Rs 2,336 posted in the same quarter of the earlier year.

Annual net profit of the bank climbed 64% at Rs 1,387 crore as compared to Rs 845 crore posted last year. Similarly total income increased by 30.58 per cent at Rs 10,534 as against Rs 8,068 crore.

The bank’s Tier-1 ratio declined marginally on account of the Rs 390-crore adjustment pertaining to AS-15 liabilities provided through the reserves.

Morgan said that the bettering asset quality and strong cost/asset ratios remain positives for the bank. The asset quality keeps on improving with both, GNPA and NNPA declining in absolute plus percentage terms.

Both Gross and Net NPAs of the Bank declined to 2.18% and 0.17% as of March 2008 from 2.94% and 0.96% in the previous year. The cost to Income ratio that reflects the bank’s operating efficiency further reduced to 38.17% as of Mar’08 from 42.45% in the previous year. Cost to Income ratio of the Bank is one of the lowest among peer banks.

Regardless of a scenario of rising cost of raising resources, Net Interest Margin (NIM) for year ended March 08 has been maintained at 2.80%.

Moreover, the bank is on a network expansion spree. It has decided to add around 600 more outlets to its subsisting 2,516 branches in the recent fiscal.

The bank will also recruit around 4,000 employees in different cadres.