Dena Bank: 2QFY2011 Result Update :: Angel Broking

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For 2QFY2011, Dena Bank reported healthy net profit growth of 28.9% yoy,
ahead of our estimates, on account of better-than-expected operating
performance. Healthy CASA accretion and consequent NIM expansion were the
key positives of the results. We maintain an Accumulate on the stock.
Better-than-expected NII growth: On a sequential basis, advances de-grew 4.4%
and deposits recorded a marginal growth of 0.4% compared to industry growth
of advances (2.0% qoq) and deposits (3.4% qoq). CASA deposits registered a
strong 29.9% yoy and 10.0% qoq growth leading to a substantial ~340bp qoq
improvement in CASA ratio to 39.1% from 35.7% as of 1QFY2011. Reported
NIM improved by a substantial 70bp qoq to 3.52%. Consequently, NII grew by a
robust 93.5% yoy and 29.1% qoq to `465cr despite a ~230bp sequential
decline in the CD ratio. Core fee income and recoveries from written-off
accounts grew at healthy rates of 34.9% yoy and 40.9% yoy, respectively.
Absolute gross NPAs increased by 3.1% qoq to `826cr. Slippages came down
considerably with a slippage rate of 1.6% in 2QFY2011 compared to 2.7% in
1QFY2011 and 2.2% in FY2010.
Outlook and Valuation: Dena Bank, with a strong CASA ratio of 39.1%, is better
placed than peers to protect its NIM in a rising interest rate environment. After
the proposed capital infusion, the bank's tier-I ratio will improve to 9.1% by
end-FY2011 from 8.2% in FY2010, and enable it to maintain its CAR well above
12% levels until FY2012. At the CMP, the stock is trading at 6.5x FY2012E EPS of
`21.3 and 1.2x FY2012E ABV of `115.1. We maintain an Accumulate on the
stock with a Target Price of `150. We have assigned a target multiple of 1.3x
FY2012E ABV, translating into 8.7% upside from current levels.