Dena Bank - Stability continues - Elara Capital

Improving operational efficiency supports profitability

While NII grew by 15% and net income by 16%, PPoP registered a growth of 24% on the back improving cost efficiency with CI ratio improving by 400 bps YoY. NIMs were lower by 20 bps QoQ on the back of sharp fall in CD ratio (to 70% from 74% QoQ) and lending rate cuts. CASA was higher by 100 bps QoQ on strong CA growth. Tier I ratio, including H1 profits, stands at 9%. While advances grew by 38% YoY on the back of a low base, sequential growth was nil, below industry average. SME and MSME, which have been key thrust areas for the bank over the last few quarters, largely contributed to credit growth this quarter.

Asset quality holds better than peers

Marginally higher slippages at 2% and weak credit growth pushed up both gross and net NPA by 20 bps sequentially. Provision coverage ratio (excluding technical write-offs) declined by 600 bps sequentially to 38%. Restructured book saw additions of ~INR 3 bn and rose to INR 45 bn, accounting for 7.6% of loan book, marginally up on a QoQ basis. Cumulative slippages from the restructured portfolio to NPA stood at ~4%.

Valuations rolled to FY14, TP revised

The scrip has been the top performer in the PSU space over the last 8 months or so since we initiated coverage. Improving operational efficiency, stable asset quality, high ROE and ROA at 20% and 1% respectively for FY13-14 seem to be the bank's key positives. Tier I ratio at 9% (including H1 profits) remains healthy largely on the back of strong internal accruals. The stock currently trades FY13 and FY14 Adj P/B of 0.9 and 0.75 respectively, relative to long term average levels of 0.95. We arrive at a price of INR 130 using residual income model, implying FY13 and FY14 Adj P/B of 1 and 0.9 respectively.

Source : Equity Bulls

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