Advances grew by 4.3% sequentially, versus our expectation of 3%. The growth was largely driven by corporate book followed by Retail. The yoy credit growth momentum remained strong at 39%, Deposits grew by 3.3% as against our expectation of 2.5%. CASA ratio declined dramatically by 355bps to 30.9% in Q1 FY13 owing to 27.4% sequential fall in current account balances. In current macro-economic scenario, mobilization of Current deposits has been challenging across the banking industry. Savings deposits have been sequentially flat in absolute terms. Deposit profile will strengthen in ensuing quarters with declining share of Bulk Deposits (~13% of total deposits as on Jun’2012). Management targets to bring down the bulk deposits share to 10% by Mar’2013. With advances growing ahead of deposits, C/D ratio improved by 1ppt in Q1 FY13. Management has guided the credit and deposit growth in FY13 to be 20% and 18% respectively.
NIM declined by 15bps qoq to 3.06% in Q1 FY13, in line with our expectation. The decline was the result of 25bps sequential rise in Cost of Deposits. Yield on Advances remained flat. Bank has reduced interest rates on its SME and Retail portfolio in order to sustain the asset quality. We expect NIM to remain in the range of 3-3.25% in FY13 owing to declining share of bulk deposits and focus on high quality assets.
Asset quality sustained despite tough macro situation with only marginal rise of about 13bps in GNPA ratio and flat NNPA ratio. Delinquency ratio declined from 1.9% in Q4 FY12 to 1.3% in Q1 FY13. The total slippages of Rs1.92bn included one major account (Electrotherm) worth Rs550mn. Outstanding restructured advances were Rs42.6bn as on Jun’2012 (7.1% of total advances), out of which Rs8.5bn were added in Q1 FY13. During the quarter, bank restructured UP Discom (Rs4.8bn) and Dakshin Haryana Discom (Rs2.5bn). Bank foresees stress in textiles going forward. PCR continued to be robust at 75%+.
Core fee-based income growth was disappointing; down by 7.7% yoy. Also recovery in w/off accounts was very weak in the current quarter at around Rs56mn compared to Rs102mn in the corresponding period of the previous year. Management expects recovery to pick up in the subsequent quarters.
± C/I ratio improved by 2ppt qoq to 39.3% in Q1 FY13. Bank has been consistently strived to improve its operational efficiency as reflected in significant C/I ratio improvement from 46.1% in Q1 FY12 to 39.3% in Q1 FY13. Management expects C/I ratio to be around 38% in FY13. Bank has guided to slow down the branch additions in next few quarters and focus on recruiting proficient employees to further improve upon the branch productivity.
With CAR of 12.35%, Dena Bank is adequately capitalized to meet its planned balance sheet growth in the medium term. During the quarter ended Jun’2012, bank raised Lower Tier–II Bonds of Rs8.5bn.
Given Dena Bank’s relatively stable asset quality, robust PCR, healthy NIM at 3%+, lean operating structure and above 1% RoA, we maintain our BUY rating on the stock. However, on significantly weakened investment sentiment for the sector, we have reduced our 9-month target price to Rs109 implying an upside of 24.9%.
|(Rs m)||Q1 FY13||Q4 FY12||% qoq||Q1 FY12||% yoy|
|Total Interest Inc||21,372||19,559||9.3||15,282||39.9|
|Net Interest Inc||6,122||5,984||2.3||4,466||37.1|
|Key Ratios||Q1 FY13||Q4 FY12||chg qoq||Q1 FY12||chg yoy|
|Yield on advances (%)||12.0||12.0||-||11.3||0.6|
|Cost of Deposits (%)||7.7||7.4||0.3||6.7||1.0|
|Non-interest income (%)||18.8||26.0||(7.2)||21.8||(3.0)|
|Non-int.income/Interest exp (%)||9.3||15.5||(6.2)||11.5||(2.2)|
|Cost to Income (%)||39.3||41.2||(2.0)||46.1||(6.8)|
|Gross NPA (%)||
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