Dena Bank - Nirmal Bang

Results in line with expectations

Dena Bank's performance for Q3FY12 was good and broadly in line with expectations with growth in both NII and other income. The bank reported a net profit of Rs 186.7 crs in Q3FY12 resulting in a growth of 20.3% on a YoY basis and a QoQ decline of 3.6%. Although the bank reported comfortable NPA levels, we believe that the banks restructuring book is a cause of concern in the near term.

Loan book growth surges

Dena Bank's loan book grew at 15.7% YoY. However on a sequential basis loan book showed high growth of 11.2%. Management expects to sustain loan growth of 20% going forward.

NIMs improved sequentially

Net Interest Margin (NIM) stood at 3.33% in Q3FY12, as compared to 3.22% in Q2FY12 and 3.27% in Q3FY11. Strong CASA ratio and high growth in advances sequentially helped the bank to maintain higher NIMs.

Revival in other income

Other income grew at 5.7% YoY. However, it surged during the quarter by showing a QoQ growth of 18.1% and stood at Rs 134 crore. We expect other income to be stable at current levels.

Restructuring book is a cause of concern

Gross NPA ratio stood at 1.85% while Net NPA ratio came at 1.10%, sequentially lower by 8bps and 5 bps respectively. However, the bank's restructured book increased by ~Rs 600 crore and stood at around Rs 1,800 crore (4.0% of advances). Management sees some more stressed accounts coming up for restructuring in the next quarter.

Valuation & Recommendation

Comparatively stable NIMs, traction in core fee income are likely to boost Dena Bank's core operating performance which in turn will help the bank to register stable return ratios going forward. There are some near term concerns on the banks restructured book. Provisions are expected to remain higher in the current quarter. However, the banks restructured book (4% of total advance book) stands comparatively lower than the other public sector banks which we believe reflects strong performance.

Dena Bank is currently trading at a very attractive valuation amongst the banking business space. At CMP, the stock is trading at 0.74x and 0.62x FY12E and FY13E Adj BVPS respectively. We maintain our BUY rating on the stock with a target price of Rs 114.

Source : Equity Bulls

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