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Quarter in line but for higher slippages…
Dena Bank was starving for capital infusion from GoI. It received | 539
crore, which increases the near term growth visibility for the bank. We
have factored in 23% CAGR in the business mix over FY11-13E to |
1,63,849 crore. For Q4FY11, the bank reported NII of | 471 crore and PAT
of | 157 crore, in line with our estimates. Fresh slippages remained high
in Q4FY11 at | 270 crore (on account of two major accounts) against |
202 crore in Q4FY11 and | 105 crore in Q3FY11. We expect 21% CAGR in
PAT over FY11-13E to | 893 crore.
Employee provisions pushes C/I ratio up
The bank provided | 190 crore towards second pension liability (| 120
crore towards retired employee). This led to a jump in the cost to
income ratio (C/I ratio) from 44% in Q4FY10 and 46.7% in Q3FY11 to
47.4% in Q4FY11. For FY11, the C/I ratio stood at 46.7%. On account of
higher provisions towards second pension option, we see the C/I ratio at
46.7% for FY13E.
Non interest income growth driven by higher recoveries
Non-interest income of | 181 crore was higher than our estimate of |
117 crore. The bank reported recoveries of | 62 crore against | 26 crore
in Q3FY11. The fee income also showed an improvement, up 38% QoQ
and 22% YoY to | 118 crore. Over FY11-13E, we expect a moderate
11% CAGR in non interest income to | 655 crore.
Risk to our call
The downside risk to our call would emerge if the bank witnesses higher
than expected slippages. This, in turn, would result in higher credit cost
and lower profitability.
Valuation
At the CMP of | 96, the bank is trading at an attractive 0.9x FY13E ABV,
3.3x FY13E EPS. The bank, with visible growth, stable asset quality and
NIM of 2.9% commands higher valuation multiples. We see RoA of 0.9%
and RoE of 21% for FY13E. We value the bank at 1.1x FY13E ABV and
arrived at a target price of | 128. We recommend a STRONG BUY rating
on the stock at the current price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Quarter in line but for higher slippages…
Dena Bank was starving for capital infusion from GoI. It received | 539
crore, which increases the near term growth visibility for the bank. We
have factored in 23% CAGR in the business mix over FY11-13E to |
1,63,849 crore. For Q4FY11, the bank reported NII of | 471 crore and PAT
of | 157 crore, in line with our estimates. Fresh slippages remained high
in Q4FY11 at | 270 crore (on account of two major accounts) against |
202 crore in Q4FY11 and | 105 crore in Q3FY11. We expect 21% CAGR in
PAT over FY11-13E to | 893 crore.
Employee provisions pushes C/I ratio up
The bank provided | 190 crore towards second pension liability (| 120
crore towards retired employee). This led to a jump in the cost to
income ratio (C/I ratio) from 44% in Q4FY10 and 46.7% in Q3FY11 to
47.4% in Q4FY11. For FY11, the C/I ratio stood at 46.7%. On account of
higher provisions towards second pension option, we see the C/I ratio at
46.7% for FY13E.
Non interest income growth driven by higher recoveries
Non-interest income of | 181 crore was higher than our estimate of |
117 crore. The bank reported recoveries of | 62 crore against | 26 crore
in Q3FY11. The fee income also showed an improvement, up 38% QoQ
and 22% YoY to | 118 crore. Over FY11-13E, we expect a moderate
11% CAGR in non interest income to | 655 crore.
Risk to our call
The downside risk to our call would emerge if the bank witnesses higher
than expected slippages. This, in turn, would result in higher credit cost
and lower profitability.
Valuation
At the CMP of | 96, the bank is trading at an attractive 0.9x FY13E ABV,
3.3x FY13E EPS. The bank, with visible growth, stable asset quality and
NIM of 2.9% commands higher valuation multiples. We see RoA of 0.9%
and RoE of 21% for FY13E. We value the bank at 1.1x FY13E ABV and
arrived at a target price of | 128. We recommend a STRONG BUY rating
on the stock at the current price.
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