Well-diversified loan book; Mid-corporate & MSME to drive growth
Dena Bank has a well-diversified loan book spread across multiple segments like Corporate & SME (40% of total advances), MSME (15%), Agriculture (15%) and Retail (12%). Loan book witnessed a robust growth over FY09-12, reporting a CAGR of ~25%, with Corporate and MSME lending being prime focus areas. Despite strong growth, the bank has not compromised over asset quality as reflected in the Gross NPA ratio. Management has targeted a credit growth of ~22% in FY13. According to the trend in past two years, Dena Bank has posted strong growth in H2 compared to H1. We build in a 22.5% CAGR in loan book over FY12-14E, backed by an impending improvement in macro-economic conditions and better liquidity situation.
Consistent improvement in asset quality; Infra & Power exposure to come-off further
Asset quality has improved remarkably with delinquency ratio declining from 2.6% in FY09 to 1.4% in FY12, reflecting bank’s efficient credit risk management. Dena Bank is deliberately reducing its exposure to the infrastructure space, and specifically to the Power sector. Management expects slippages to be in the range of Rs8-8.5bn in FY13 and restructuring at ~Rs12bn. With slowdown in restructuring, reduction in exposure to stressed sectors like infrastructure and increase in secured lending, we expect Gross NPA ratio to decline further to 1.3% in FY13.
CASA ratio is likely to sustain at ~35%; NIM to remain above 3%
CASA ratio witnessed a marginal decline, from 36% in FY10 to 34.6% in FY12. Dena Bank expects healthy growth in SA balance in FY13, driven by robust branch additions (100 branches) and maturing of branches added in recent years. Therefore, the CASA ratio is expected to remain stable. NIM improved significantly, from 2.7% in FY08 to 3.2% in FY12, owing to shifting of focus on high-yielding segments and improvement in Credit/Deposit ratio. NIM is likely to witness a compression of 10-20bps in Q1 FY13 due to the increased lending to low-yielding Priority Sector in Q4 FY12. Management expects NIM to remain above 3% in FY13.
Multiple positives, cheap valuation make it an attractive BUY
Dena Bank has held its own in the current challenging macro economic environment, providing comfort on multiple fronts – robust asset quality, sturdy provisioning, lean operating structure, sustainable margins, healthy capitalization and RoA. We initiate coverage with a BUY rating and 9-month price target of Rs120, implying 24.2% upside from current levels.
|Y/e 31 Mar (Rs m)||FY11||FY12||FY13E||FY14E|
|Total operating income||22,972||26,832||32,416||39,990|
|yoy growth (%)||36.0||16.8||20.8||23.4|
|Operating profit (pre-provisions)||12,238||15,284||19,021||24,318|
|yoy growth (%)||19.6||31.3||14.7||24.8|
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