Dena Bank (Q1 FY14)

India Infoline News Service | Mumbai |

Dena Bank’s credit growth disappointed with de-growth of 2.2% qoq against our expectation of 3% growth.

CMP Rs53, Target Rs55, Upside 5.3%
  • Dena Bank’s credit growth disappointed with de-growth of 2.2% qoq against our expectation of 3% growth. Notwithstanding a sharp growth of 26.7% qoq in Corporate lending, de-growth in credit portfolio was led by shrivel in Real Estate (23.6% qoq), NBFC (17.7% qoq), MSME (7.5% qoq) and Priority Sector (3.4% qoq) segments. Direct Agricultural lending rose by 8.3% qoq/39.6% yoy. We expect credit growth to remain sluggish over FY14-15 tracking slowdown in the economy. Deposits de-grew by 2.9% sequentially against our expectation of 2% growth, led by decline in CASA deposits (6% qoq). Thereby, CASA ratio declined further by 91bps qoq to 27.9% in Q1 FY14. We do not foresee any material improvement in CASA ratio in the near term given the current high interest rate environment. Dena Bank continued to run down its Bulk deposits, down from ~13% of total deposits in Q4 FY13 to ~9% in Q1 FY14.


  • NIM improved by 9bps qoq to 2.55% in Q1 FY13 almost in-line with our expectation. This is attributable to 11bps decline in Cost of Deposits. Going forward, we expect NIM to remain under pressure on the back of weak credit growth, further deterioration in asset quality and pressure on Cost of Funds (owing to recent monetary tightening measures undertaken by RBI). 


  • During the quarter, asset quality deteriorated significantly with GNPA ratio rising by 50bps sequentially to 2.7%. Delinquency ratio continued to remain at multi-quarter high of 2.5%. Of the total slippages of Rs4.1bn in Q1 FY14, IT sector (Rs1.3bn) contributed the most followed by Steel (Rs740mn), SME (Rs660mn), Infrastructure (Rs550mn), Textile (Rs500mn) and Agriculture (Rs370mn). Outstanding restructured advances stood at 10.1% (Rs65.4bn) of total advances, up from 8.2% in Q4 FY13. During the quarter, bank restructured advances to the tune of Rs9bn; of these, the major accounts were Tamil Nadu Electricity Board (Rs5.24bn), Parekh Aluminex (Rs1.5bn), Arshiya International Ltd (Rs890mn) amd AMW Motors (Rs810mn). Bank has a restructuring pipeline of Rs8bn expected in Q2 FY14, comprising of 12-14 accounts. Less than commensurate provisioning resulted in further decline in PCR, down by 3.4% qoq to 66% in Q1 FY14. As a result, Net NPA ratio shot up from 1.39% in Q4 FY13 to 1.74% in Q1 FY14. Persistence of high delinquency ratio and substantial restructuring pipeline clearly indicates the stress on asset quality.


  • Non-interest income spiked up significantly by 55% qoq/158% yoy driven by substantial trading gains (Rs2,480mn in Q1 FY14 as against Rs320mn in Q1 FY13). As a result, Cost/Income ratio improved significantly from 49.7% in Q4 FY13 to 39.6% in Q1 FY13. However, we expect C/I ratio to remain elevated in the ensuing quarters driven by weak Net Interest Income growth and lower trading gains.


  • Dena Bank’s Tier I ratio stands lower at 7.3%, less than required to comply with Basel III norms and support planned balance sheet growth. Bank is expecting capital infusion from GoI in the near future to support its capital requirement. 


  • Anticipating weak credit demand, a further rise in GNPAs, substantial restructuring activity, pressure on margins and higher credit cost, earnings is likely to remain suppressed in the medium term. Therefore, we have slashed our earnings estimates by ~30% for both FY14 and FY15. Downgrade stock to Market Performer with 9-month target price of Rs55.

Result table
(Rs mn)
Q1 FY14
Q4 FY13
% qoq
Q1 FY13
% yoy
Total Interest Income
24,002
23,043
4.2
21,372
12.3
Interest expended
(17,954)
(17,423)
3.0
(15,250)
17.7
Net Interest Income
6,047
5,620
7.6
6,122
(1.2)
Other income
3,655
2,355
55.2
1,417
158.0
Total Income
9,703
7,974
21.7
7,539
28.7
Operating expenses
(3,840)
(3,967)
(3.2)
(2,960)
29.7
Provisions
(2,281)
(3,420)
(33.3)
(1,034)
120.6
PBT
3,581
588
508.9
3,545
1.0
Tax
(1,689)
669
(352.6)
(1,159)
45.7
Reported PAT
1,892
1,257
50.6
2,386
(20.7)
EPS
21.6
14.4
50.6
27.3
(20.7)
 
Key  Ratios
Q1 FY14
Q4 FY13
chg qoq
Q1 FY13
chg yoy
NIM (%)
2.6
2.5
0.1
3.1
(0.5)
Yield on advances (%)
11.3
11.3
0.0
12.0
(0.6)
BSE 24.10 0 (0%)
NSE 24.05 [0.05] ([0.21]%)

***Note: This is a NSE Chart

 

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