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Dena Bank’s PAT was in line with our expectation with a 15% YoY jump
to | 155 crore as NII jumped 65% YoY (though flat QoQ) to | 466 crore.
NIM slide of 20 bps QoQ was again as anticipated at 3.3%, due to
higher burden of rising cost of deposits, which increased 21 bps QoQ to
5.75%. Yield on advances was flat QoQ at 10.3%. Business mix crossed
the landmark | 1000 billion. For Q3FY11, deposits registered growth of
26% YoY to | 60479 crore while advances grew 34% to | 41426 crore.
The positive surprise came from healthy business growth and notable
improvement in asset quality during Q3FY11. We expect 20% CAGR in
the business mix over FY10-12E, NII to grow at 40% CAGR to | 2165
crore and PAT at 23% CAGR to | 779 crore.
Operating expenses rise on account of pension provisions
Total liability under the second pension could be ~| 470 crore (as per
management guidance). The bank made an ad hoc provision of | 70 crore
during Q3FY11 towards the same. The management also indicated that
~| 25-30 crore would be provided each quarter towards pension, which
will be amortised over a period of five years. On this account, CI ratio
jumped by 240 bps QoQ to 46.7%. We expect the CI ratio to moderate to
45% by FY12E (44% expected earlier), lowering our PAT estimates.
Asset quality improves, eye on slippages
On a QoQ basis, GNPA improved by 32 bps to 1.9%. NNPA ratio also
showed an improvement of 23 bps to 1.3%. However, in absolute terms,
both GNPA and NNPA saw a decline of 3% each. PCR continues to be
strong at 76%. For FY12E, we see GNPA @ 2.2% and NNPA at 1.2%.
The bank has so far restructured assets worth | 1323 crore and witnessed
slippages of | 122 crore from these accounts. The management expects
slippages to remain high in Q4FY11. We have, thus, revised up our credit
cost impacting PAT by ~4% for FY11E.
Valuation
At the CMP of | 100, the bank is trading at 1x FY12E ABV, which looks
attractive. The bank, which has improved its operating matrix, has had
consistent delivery of RoA of ~1%, RoE of 19%+, NIM over 3%,
gradually improving asset quality and above industry business growth
that demands higher multiple. We have valued the bank at 1.25x FY12E
ABV to arrive at a fair value target of | 130.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dena Bank’s PAT was in line with our expectation with a 15% YoY jump
to | 155 crore as NII jumped 65% YoY (though flat QoQ) to | 466 crore.
NIM slide of 20 bps QoQ was again as anticipated at 3.3%, due to
higher burden of rising cost of deposits, which increased 21 bps QoQ to
5.75%. Yield on advances was flat QoQ at 10.3%. Business mix crossed
the landmark | 1000 billion. For Q3FY11, deposits registered growth of
26% YoY to | 60479 crore while advances grew 34% to | 41426 crore.
The positive surprise came from healthy business growth and notable
improvement in asset quality during Q3FY11. We expect 20% CAGR in
the business mix over FY10-12E, NII to grow at 40% CAGR to | 2165
crore and PAT at 23% CAGR to | 779 crore.
Operating expenses rise on account of pension provisions
Total liability under the second pension could be ~| 470 crore (as per
management guidance). The bank made an ad hoc provision of | 70 crore
during Q3FY11 towards the same. The management also indicated that
~| 25-30 crore would be provided each quarter towards pension, which
will be amortised over a period of five years. On this account, CI ratio
jumped by 240 bps QoQ to 46.7%. We expect the CI ratio to moderate to
45% by FY12E (44% expected earlier), lowering our PAT estimates.
Asset quality improves, eye on slippages
On a QoQ basis, GNPA improved by 32 bps to 1.9%. NNPA ratio also
showed an improvement of 23 bps to 1.3%. However, in absolute terms,
both GNPA and NNPA saw a decline of 3% each. PCR continues to be
strong at 76%. For FY12E, we see GNPA @ 2.2% and NNPA at 1.2%.
The bank has so far restructured assets worth | 1323 crore and witnessed
slippages of | 122 crore from these accounts. The management expects
slippages to remain high in Q4FY11. We have, thus, revised up our credit
cost impacting PAT by ~4% for FY11E.
Valuation
At the CMP of | 100, the bank is trading at 1x FY12E ABV, which looks
attractive. The bank, which has improved its operating matrix, has had
consistent delivery of RoA of ~1%, RoE of 19%+, NIM over 3%,
gradually improving asset quality and above industry business growth
that demands higher multiple. We have valued the bank at 1.25x FY12E
ABV to arrive at a fair value target of | 130.
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