Valuation Upgrade: From Attractive to Very Attractive
The most notable catalyst for the upgrade is the bank’s valuation grade, which has shifted from attractive to very attractive. Union Bank currently trades at a price-to-earnings (PE) ratio of 7.09, substantially lower than its peer State Bank of India’s expensive 13.3 and even slightly below Bank of Baroda’s 7.38. This low PE ratio indicates the stock is undervalued relative to its earnings potential.
Additionally, the price-to-book (P/B) value stands at a near-par 1.03, signalling that the market price closely reflects the bank’s net asset value, a favourable sign for value investors. The price-to-earnings-growth (PEG) ratio is an impressive 0.56, well below 1, suggesting that the stock’s price growth is not fully accounting for its earnings growth potential. Dividend yield at 2.76% further enhances the stock’s appeal, offering steady income alongside capital appreciation prospects.
These valuation metrics collectively underpin the very attractive grade, positioning Union Bank as a compelling buy relative to its public sector banking peers.
Quality Assessment: Strong Fundamentals and Asset Quality
Union Bank’s quality parameters remain robust, supporting the upgrade. The bank’s return on equity (ROE) is a healthy 14.57%, reflecting efficient utilisation of shareholder capital. Return on assets (ROA) at 1.24% is also commendable for a public sector bank, indicating effective asset management.
Asset quality indicators have improved, with gross non-performing assets (NPA) at a low 3.06% and net NPA at an exceptionally low 0.51%. The net NPA to book value ratio stands at 4.05%, demonstrating prudent risk management and provisioning. The provision coverage ratio of 76.68% further highlights the bank’s conservative approach to potential credit losses, enhancing investor confidence in its balance sheet strength.
These quality metrics contribute to the bank’s strong fundamental strength, justifying the upgrade in its Mojo Grade to Strong Buy with a high Mojo Score of 81.0.
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Financial Trend: Sustained Profit Growth and Market Outperformance
Union Bank’s financial trajectory has been impressive, with net profits growing at a compound annual growth rate (CAGR) of 63.27% over the long term. The bank’s recent quarterly performance for Q3 FY25-26 has been positive, reinforcing confidence in its earnings momentum.
Over the past year, the stock has delivered a remarkable 51.53% return, significantly outperforming the Sensex’s modest 5.37% gain. Even on a three-year horizon, Union Bank’s stock has surged 132.83%, dwarfing the Sensex’s 36.26% rise. This market-beating performance is complemented by a 12.6% increase in profits over the last year, underscoring the bank’s ability to translate operational improvements into shareholder value.
The credit-deposit ratio at 81.03% indicates strong lending activity relative to deposits, signalling healthy business growth and efficient capital deployment. Institutional investors hold a substantial 20.04% stake, reflecting confidence from sophisticated market participants who typically conduct rigorous fundamental analysis.
Technical Outlook: Positive Momentum and Price Stability
Technically, Union Bank’s stock price has shown resilience and upward momentum. The current price of ₹170.55 is close to its 52-week high of ₹183.40, indicating sustained investor interest and limited downside risk. The stock’s day change of +0.77% on 3 February 2026 reflects steady buying pressure.
Price action over the past month has been strong, with an 8.77% gain compared to the Sensex’s 4.78% decline, signalling relative strength. The stock’s low volatility and consistent upward trend support the technical upgrade embedded in the new rating.
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Peer Comparison and Market Positioning
When compared with its public sector banking peers, Union Bank stands out for its valuation and growth metrics. While State Bank of India remains expensive with a PE of 13.3 and a PEG ratio of zero, Union Bank’s PEG of 0.56 indicates undervaluation relative to growth. Bank of Baroda and Punjab National Bank also have very attractive valuations but slightly higher PE ratios of 7.38 and 8.63 respectively.
Union Bank’s consistent improvement in asset quality, profitability, and provisioning coverage places it favourably within the sector. Its market capitalisation grade remains at 1, reflecting its status as a large-cap entity with strong institutional backing and liquidity.
Conclusion: A Compelling Investment Opportunity
The upgrade of Union Bank of India’s investment rating to Strong Buy is well justified by a confluence of factors. The very attractive valuation metrics, combined with strong quality indicators such as low NPAs and high provision coverage, underpin the bank’s fundamental strength. Financial trends reveal sustained profit growth and market-beating returns, while technical signals confirm positive momentum and price stability.
Investors seeking exposure to the public sector banking space would find Union Bank a compelling candidate, given its attractive risk-reward profile and robust long-term growth prospects. The bank’s improved Mojo Score of 81.0 and upgraded Mojo Grade reflect a comprehensive reassessment that favours accumulation at current levels.
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