Dena Bank’s lending portfolio remained almost flat sequentially against our expectation of 3.5% qoq growth. The yoy credit growth momentum was robust at 37.8%, with a strong traction in Priority Sector credit (41.4% yoy) and MSME (36.2% yoy). Management has guided credit growth of ~20% in FY13, largely driven by MSME, Priority Sector and Retail segment. Deposits recorded a healthy growth of 4.8% qoq/30.1% yoy. The growth was largely driven by 8% sequential growth in CASA, followed by 3.7% qoq growth in Term Deposits. CASA ratio rose by 95bps qoq to 31.9% in Q2 FY13, led by 22.8% qoq growth in Current Deposits and 4% qoq growth in Savings Deposits. Management is confident of sustaining CASA ratio at 30%+ going forward. With deposits growing ahead of advances in Q2 FY13, C/D ratio decreased 4ppt, from 75% in Q1 FY13 to 71% in Q2 FY13.
NIM declined by 20bps qoq to 2.86% in Q2 FY13, owing to decline in YoA (14bps qoq; due to rationalization of interest rates in certain credit segments to sustain asset quality) more than offset the fall in CoD (4bps) and decrease in C/D ratio. We expect NIM of ~3% in FY13, led by revival in C/D ratio, focus on relatively better yielding credit segments and improvement in CoD.
Asset quality disappointed slightly with GNPA (1.97%) and NNPA (1.22%) ratio increasing by 17bps and 21bps respectively in Q2 FY13. Delinquency ratio rose from 1.3% in Q1 FY13 to 1.9% in Q2 FY13. Out of the total slippages of Rs2.9bn, the largest account was of ~Rs600mn pertaining to hotel industry. Less-than-commensurate provisioning resulted in decline in PCR from 75.6% in Q1 FY13 to 72.5% in Q2 FY13. However, it is still one of the highest among its peers. Outstanding restructured advances stood at 7.6% of total advances, adding advances to the restructured book to the tune of ~Rs3bn during Q2 FY13. These included 3 textile accounts (Rs1.5bn), 1 port account (Rs600mn) and 1 steel account (Rs600mn). Management expects restructuring of advances worth Rs1.6bn in Q3 FY13.
Non-interest income de-grew by 5.5% sequentially, led by weak CEB income growth (1.5% qoq) and lower trading profits and slower recovery (Rs91.2mn in Q2 FY13 compared to Rs128mn in Q2 FY12). Bank added 59 new branches and 16 ATMs during the quarter, keeping the C/I ratio intact below 40% in H1 FY13. Bank targets to add 25 branches in H2 FY12.
Keeping in view Dena Bank’s better asset quality (lower delinquencies and restructuring compared to its peers), sustenance of CASA ratio above 30%+ in challenging times, lower volatility in margins, healthy PCR, lean operating structure and ~1% RoA, we believe the bank would continue to put up a resilient show in tough times. Thereby, we maintain our BUY rating with increased target price of Rs130.
|(Rs mn)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Total Interest Income||21,940||21,372||2.7||16,338||34.3|
|Net Interest Income||5,940||6,122||(3.0)||5,149||15.4|
|Key Ratios||Q2 FY13||Q1 FY13||chg qoq||Q2 FY12||chg yoy|
|Yield on advances (%)||11.8||12.0||(0.1)||12.0||(0.2)|
|Cost of Deposits (%)||7.6||7.7||(0.0)||7.0||0.7|
|Non-interest income (%)||18.4||18.8||(0.4)||18.0||0.3|
Interest exp (%)
|Cost to Income (%)||39.9||39.3||0.7||44.0||(4.0)|
|Gross NPA (%)||2.0||1.8||0.2||
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