Dena Bank: Strong business, repricing benefits boost NII…say ICICI Sec

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Strong business, repricing benefits boost NII…
Dena Bank’s PAT beat our expectation with a 29% YoY jump to Rs 161
crore as NII zoomed 93.5% YoY (29% QoQ) to Rs 465 crore. This NII
growth stems from NIM gaining 70 bps QoQ to 3.5% on account of
repricing benefits reaped on both advances and deposits. Business
growth continues to be strong with deposits up 18% YoY (flat QoQ) to
Rs 53498 crore backed by the CASA ratio improving by ~350 bps QoQ
to 39% and loan book rising 21% YoY (down 4% QoQ) to Rs 36541
crore. We expect a 20% CAGR in business and higher FY11E NIM at
~3% (further repricing benefits expected in Q3FY11) to boost PAT by
30% CAGR over FY10-12E.
NII surges 93.5% YoY, NIM leaps to 3.5% as YoA improves, CoD falls…
The stellar performance on the NII front came in as interest income rose
27% YoY (10% QoQ). However, interest expense gained only 5% YoY
(0.3% QoQ). This peculiarity can be attributed to improved YoA and CoD,
which resulted in the NIM leaping to 3.5% and a subsequently higher NII
growth. Repricing of bulk deposits lowered its CoD from 6.36% in Q2FY10
to 5.54% in Q2FY11. In addition, 50% of the current outstanding bulk
deposits of Rs 7649 crore are expected to get repriced in H2FY11
reducing its CoD in coming quarters.
The YoA rose this quarter to 10.3% (up 66 bps QoQ, down 16 bps YoY) as
~70% of its sub-base rate loan book got repriced. We expect a further
improvement in the YoA as the remaining sub base rate book gets
repriced in Q3FY11. We expect the NIM to change its trajectory from
2.6% levels in FY10 to ~2.8-3% for FY11E.
Asset quality under control…
On a QoQ basis, the GNPA inched up 15 bps to 2.26%. The NNPA ratio
was flat at 1.49%. However, the NNPA in absolute terms saw a decline of
4% QoQ to Rs 537.8 crore. PCR continues to be strong at 75% this
quarter. We expect GNPA of 2.2% and NNPA of 1.2% by FY12E.
Valuation
A strong core business performance and high NIM have led to RoA and
RoE improving to 1.03% and 23.5%, respectively. We believe the
expected repricing in Q3FY11, anticipated capital infusion of Rs 600 crore
and targeted reduction in GNPA to below Rs 800 crore is likely to trigger a
growth surge for the bank. Hence, we have valued the bank at 1.5x FY12E
ABV at Rs 162.