CMP Rs111, Target Rs140, Upside 26.5%
- In-line with our expectation, Dena Bank’s loan book reported a healthy sequential growth of 6.1%. The yoy credit growth momentum was robust at 31.5%, with a strong traction in Agriculture (56.9%), Priority Sector (35.4% yoy), Corporate (31.5%) and MSME (28.7% yoy). Retail segment was relatively slow reporting a growth of 2.4% qoq/15.9% yoy. Management has guided credit growth of 18% in FY13, largely driven by MSME, Priority Sector and Retail segments. Deposits grew by 1.6% qoq, against our expectation of 3.5%. The sluggish growth can be attributed to de-growth of 6.2% in Current Deposits. Saving Deposits ended almost flat sequentially. Resultantly, CASA ratio dipped by 90bps qoq to 31% in Q3 FY13. Management is confident of sustaining CASA ratio at 30%+ going forward. The proportion of bulk deposits has come off significantly from 29% in Dec’2011 to 19% in Dec’2012, signifying an improvement in deposit franchise. Strong growth in advances relative to deposits resulted in increase in C/D ratio by 3ppt, from 71% in Q2 FY13 to 74% in Q3 FY13.
- NIM improved by just 2bps qoq, against our expectation of 5bps, to 2.88% in Q3 FY13. The rise was largely led by an uptick in C/D ratio and increase in YoA (14bps qoq) more than offset an increase in CoD (11bps). In our view, extreme caution in lending, strong credit monitoring and improvement in deposit profile will hold the NIM above 2.9% in the ensuing quarters.
- Delinquency ratio improved from 1.9% in Q2 FY13 to 1.6% in Q3 FY13. However, lower recoveries resulted in an increase in GNPA (2.1%) and NNPA (1.3%) ratio by 12bps and 9bps respectively in Q3 FY13. Out of the total slippages of Rs2.4bn, the two largest accounts were from power sector (Rs410mn) and telecom sector (Rs320mn). Outstanding restructured advances stood at 7.6% of total advances, adding advances to the restructured book to the tune of Rs2.4bn during Q3 FY13. Two large accounts were restructured in Q3 FY13 pertaining to tollway and cement sector, contributing Rs500mn each. Bank made additional provision of 0.75% on the existing restructured book (as mandated by RBI), thereby resulting in spike in the provision on standard advances from Rs32mn in Q2 FY13 to Rs450mn in Q3 FY13. With various initiatives taken by the management, recoveries are expected to be strong in the coming quarters. PCR declined marginally by 190bps qoq to 70.6%, still one of the highest among PSBs.
- Non-interest income posted a healthy sequential growth of 7.9%. However, on yoy basis it remained muted at 7.8%. Operating expenses grew by 8.8% sequentially. Resultantly, C/I ratio rose by 170bps qoq to 41.7% in Q3 FY13. During the 9M FY13, bank added 89 new branches and has targeted to added 11 branches in Q4 FY13 and 150-200 branches in FY14.
- Dena Bank has fared relatively better than its peers in challenging times - better asset quality (lower delinquencies and restructuring compared to its peers), sustenance of CASA ratio above 30%+, lower volatility in margins, healthy PCR and C/I ratio in the range of 40-42%. As the sentiment improves we expect strong performance from the bank. Thereby, we maintain our BUY rating and initiate a new call with target price of Rs140.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||22,640||21,940||3.2||16,762||35.1|
|Net Interest Income||6,149||5,940||3.5||5,412||13.6|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Yield on advances (%)||12.0||11.8||0.2||12.2||(0.2)|
|Cost of Deposits (%)||7.8||7.6||0.1||7.1||0.7|
|Non-interest income (%)||19.0||18.4||0.6||19.8||(0.8)|
|Non-interest income/Interest exp (%)||8.8||8.4||0.4||11.8||(3.0)|
|Cost to Income (%)||41.7||39.9||1.7||41.8||(0.1)|
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