Showing posts with label Dhanlaxmi Bank. Show all posts
Showing posts with label Dhanlaxmi Bank. Show all posts
21 February 2012
Dhanlaxmi Bank report ::ICICI Securities
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C o r e o p e r a t i o n s p a i n t a g l o o m y p i c t u r e …
Dhanlaxmi Bank is in deep turmoil faced with stress from all round. It
posted a substantial loss of | 36.9 crore, which is the last thing required
from a bank facing capital shortage. NII posted a lacklustre performance
with 13.7% YoY and 6.5% QoQ de-growth to | 63.5 crore (I direct estimate:
| 70.5 crore). Credit growth is subdued with 22.9% YoY growth and 5.7%
QoQ de-growth to | 9553 crore. Non-interest income growth was short of
expectations at | 26.6 crore with 20.3% YoY and 40.1% QoQ de-growth.
Operating expense has become unmanageable with C/I ratio of 140.5% in
Q3FY12. Asset quality sharply deteriorated with GNPA surging 31.9% QoQ
to | 73.4 crore. GNPA and NNPA ratio for the quarter was 0.8% and 0.4%,
respectively. On account of the dismal all-round show, we have revised our
estimates and the bank is expected to make a loss of | 30.1 crore for FY12E.
We believe the stock will remain volatile but underperform the sector.
Therefore, we are dropping coverage on the stock.
ƒ Net total income unable to even cover operating expense…
Operating expense for Q3FY12 was | 126.6 crore much higher than
net total income of | 90.1 crore. Both NII and non-interest income
growth was subdued. Adverse economic conditions and lack of
capital is hampering business growth. This coupled with NIM pressure
has led to muted NII. Non-interest income took a setback on account
of lower credit disbursements leading to moderate processing fees.
ƒ Asset quality deterioration comes as negative surprise…
Reversal of a downward trend in the GNPA came as a negative
surprise. GNPA surged 31.9% QoQ to | 73.4 crore in Q3FY12. The
corporate sector contributed | 14 crore to the incremental GNPA
addition of | 17.7 crore while retail accounted for the remaining
portion. The corporate sector witnessed slippage of | 22 crore while
upgradation for the quarter was | 7 crore. We estimate GNPA ratio at
0.8% and NNPA ratio at 0.3%, both for FY12E and FY13E.
V a l u a t i o n
The bank has suffered considerably on account of recent labour union
issues. It failed to raise capital last time and even now, there is no clear
guidance. Its CAR stands at 9.9% with Tier I at 8%. Revival of the bank is
likely to take time. Hence, we continue to maintain our view to exit on rally
India Equity Research Reports, IPO and Stock News
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C o r e o p e r a t i o n s p a i n t a g l o o m y p i c t u r e …
Dhanlaxmi Bank is in deep turmoil faced with stress from all round. It
posted a substantial loss of | 36.9 crore, which is the last thing required
from a bank facing capital shortage. NII posted a lacklustre performance
with 13.7% YoY and 6.5% QoQ de-growth to | 63.5 crore (I direct estimate:
| 70.5 crore). Credit growth is subdued with 22.9% YoY growth and 5.7%
QoQ de-growth to | 9553 crore. Non-interest income growth was short of
expectations at | 26.6 crore with 20.3% YoY and 40.1% QoQ de-growth.
Operating expense has become unmanageable with C/I ratio of 140.5% in
Q3FY12. Asset quality sharply deteriorated with GNPA surging 31.9% QoQ
to | 73.4 crore. GNPA and NNPA ratio for the quarter was 0.8% and 0.4%,
respectively. On account of the dismal all-round show, we have revised our
estimates and the bank is expected to make a loss of | 30.1 crore for FY12E.
We believe the stock will remain volatile but underperform the sector.
Therefore, we are dropping coverage on the stock.
ƒ Net total income unable to even cover operating expense…
Operating expense for Q3FY12 was | 126.6 crore much higher than
net total income of | 90.1 crore. Both NII and non-interest income
growth was subdued. Adverse economic conditions and lack of
capital is hampering business growth. This coupled with NIM pressure
has led to muted NII. Non-interest income took a setback on account
of lower credit disbursements leading to moderate processing fees.
ƒ Asset quality deterioration comes as negative surprise…
Reversal of a downward trend in the GNPA came as a negative
surprise. GNPA surged 31.9% QoQ to | 73.4 crore in Q3FY12. The
corporate sector contributed | 14 crore to the incremental GNPA
addition of | 17.7 crore while retail accounted for the remaining
portion. The corporate sector witnessed slippage of | 22 crore while
upgradation for the quarter was | 7 crore. We estimate GNPA ratio at
0.8% and NNPA ratio at 0.3%, both for FY12E and FY13E.
V a l u a t i o n
The bank has suffered considerably on account of recent labour union
issues. It failed to raise capital last time and even now, there is no clear
guidance. Its CAR stands at 9.9% with Tier I at 8%. Revival of the bank is
likely to take time. Hence, we continue to maintain our view to exit on rally
28 January 2012
Third Quarter Monetary Policy Review: RBI Buys Time::Dhanlaxmi Bank
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RBI Cuts CRR 50 bps, Rates Left Unchanged
R ESERVE Bank of India slashed cash reserve ratio (CRR) by 50 bps to 5.5% of Net Demand and Time Liabilities (NDTL)at its third quarter monetary policy on January 24. RBI’s move has been guided by severe liquidity tightness that has prevailed since December. RBI said ―the persistence of tight liquidity conditions could disrupt credit flow and further exacerbate growth risks‖ and therefore reduced excessive strain on liquidity with a cut in CRR. RBI’s move will inject around `32,000 crore in the system.
The central bank left interest rates unchanged as non-food manu-factured inflation has remained high and risks to it remain on the upside. RBI remarked that given the risk to inflation trajectory, it would be premature to ease interest rates at this juncture. However, it guided that rates would ease contingent to sustainable modera-tion in inflation. The central bank has also explicitly stated that fiscal consolidation is a pre-condition to easing rates. RBI took the following decisions at its January third quarter review of the 2011-12 (April-March) monetary policy:
CRR cut by 50 bps to 5.5%, while statutory liquidity ra-tion has been left unchanged
Repo rate unchanged at 8.50%
Consequently, reverse repo rate unchanged at 7.50%, as it has been pegged 100 bps below repo rate
Marginal Standing Facility (MSF), instituted 100 bps above repo rate, unchanged at 9.50%
RBI’s pause in rate action in the latest policy follows its assess-ment of upside risks to inflation. Today’s policy is also a reflection of the central bank’s inability to ease rates due to several external and internal factors despite sharply decelerating economic growth momentum, as well as overwhelming presence of downside risks to growth. RBI has indicated a reversal from its tightening mone-tary policy maintained so far, provided core inflation eases sustain-ably. The following point sum up the policy stance:
Interests Rates Easing Contingent on Inflation : RBI high-lighted that global and domestic economic conditions have deterio-rated further from its second quarter monetary policy review in October. Inflation is likely to moderate, but risks remain on the upside. With sharp decline in investments and industrial activity, it is also necessary to look at growth dynamics. However, risks to inflation, particularly due to sharp depreciation of rupee and ele-vated commodity prices, restrict RBI from supporting growth at this juncture. Reversal of interest rates cycle is contingent on mod-eration in inflation.
PRU View: RBI’s policy document reflects RBI’s inability to assist growth due to risks to inflation, despite a clear slowdown in growth and falling investments. However, a CRR cut is pragmatic as it prevents further disruption in the economy due to liquidity stress. RBI has started weighing the weakening global economic scenario along with weakening demand pressures in the domestic economy, but gave conditional guidance for reversal of policy rates. The central bank cut GDP growth forecast further to 7% from 7.6% earlier, but left inflation projection unchanged due to pressure from commodity prices. We feel RBI will cut rates when two conditions are met. One, after non-food manufactured infla-tion shows signs of sustainable moderation and, second, when there are clear signs of fiscal consolidation. Two logical outcomes emerge: expect RBI to support rupee to contain core inflation pressures, and, rate cuts can now happen only after the Budget.
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RBI Cuts CRR 50 bps, Rates Left Unchanged
R ESERVE Bank of India slashed cash reserve ratio (CRR) by 50 bps to 5.5% of Net Demand and Time Liabilities (NDTL)at its third quarter monetary policy on January 24. RBI’s move has been guided by severe liquidity tightness that has prevailed since December. RBI said ―the persistence of tight liquidity conditions could disrupt credit flow and further exacerbate growth risks‖ and therefore reduced excessive strain on liquidity with a cut in CRR. RBI’s move will inject around `32,000 crore in the system.
The central bank left interest rates unchanged as non-food manu-factured inflation has remained high and risks to it remain on the upside. RBI remarked that given the risk to inflation trajectory, it would be premature to ease interest rates at this juncture. However, it guided that rates would ease contingent to sustainable modera-tion in inflation. The central bank has also explicitly stated that fiscal consolidation is a pre-condition to easing rates. RBI took the following decisions at its January third quarter review of the 2011-12 (April-March) monetary policy:
CRR cut by 50 bps to 5.5%, while statutory liquidity ra-tion has been left unchanged
Repo rate unchanged at 8.50%
Consequently, reverse repo rate unchanged at 7.50%, as it has been pegged 100 bps below repo rate
Marginal Standing Facility (MSF), instituted 100 bps above repo rate, unchanged at 9.50%
RBI’s pause in rate action in the latest policy follows its assess-ment of upside risks to inflation. Today’s policy is also a reflection of the central bank’s inability to ease rates due to several external and internal factors despite sharply decelerating economic growth momentum, as well as overwhelming presence of downside risks to growth. RBI has indicated a reversal from its tightening mone-tary policy maintained so far, provided core inflation eases sustain-ably. The following point sum up the policy stance:
Interests Rates Easing Contingent on Inflation : RBI high-lighted that global and domestic economic conditions have deterio-rated further from its second quarter monetary policy review in October. Inflation is likely to moderate, but risks remain on the upside. With sharp decline in investments and industrial activity, it is also necessary to look at growth dynamics. However, risks to inflation, particularly due to sharp depreciation of rupee and ele-vated commodity prices, restrict RBI from supporting growth at this juncture. Reversal of interest rates cycle is contingent on mod-eration in inflation.
PRU View: RBI’s policy document reflects RBI’s inability to assist growth due to risks to inflation, despite a clear slowdown in growth and falling investments. However, a CRR cut is pragmatic as it prevents further disruption in the economy due to liquidity stress. RBI has started weighing the weakening global economic scenario along with weakening demand pressures in the domestic economy, but gave conditional guidance for reversal of policy rates. The central bank cut GDP growth forecast further to 7% from 7.6% earlier, but left inflation projection unchanged due to pressure from commodity prices. We feel RBI will cut rates when two conditions are met. One, after non-food manufactured infla-tion shows signs of sustainable moderation and, second, when there are clear signs of fiscal consolidation. Two logical outcomes emerge: expect RBI to support rupee to contain core inflation pressures, and, rate cuts can now happen only after the Budget.
20 January 2012
Cement Sales Growth Eases, But Prices Firm:: Dhanlaxmi Bank,
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Cos hold up prices by controlling output Excess capacity may keep prices under check
S lowdown in the economy has not prevented the cement industry from keeping prices firm, but huge capacity addition expected in the coming two years may test the sector’s resilience amid price and margin pressures.
The beginning of the current financial year was marked by low cement off-take in India. As the year progressed, cement consumption, as re-flected by despatches of companies, improved. While despatches in the first half of the financial year rose a moderate 3.6% compared with a year ago, consumption rose sharply post monsoon. Cement despatches rose 10.6% in October-December, resulting in a growth of 5.9% in the nine months ended December.
On a sequential basis, there was an improvement in despatches in each of the three quarters of 2011-12 (April-March).
While October-December growth looks good, it must be noted that low base of the previous year played a significant role in boosting the numbers. Volumes had recorded a year-on-year decline in No-vember and December of 2010, resulting in growth in October-December 2011 looking robust.
Other reasons for improvement in despatches include:
Moderate revival of demand in regions other than the south
Year-end volume push by cement majors
Re-stocking by dealers on expectations of rise in demand from this month
Demand for cement is also seasonal in nature. Usually, monsoon is the slack period for the cement industry as construction activity slows down.
Demand in the current financial year slowed in April-December as major demand drivers grew at a moderate pace. Key demand driv-ers in the cement sector include:
Housing sector: It accounts for a large portion of domestic demand. Rise in urbanisation, an increasing number of house-holds and higher employment are primarily driving demand for housing. However, uncertainty about future incomes, rising interest rates and firm real estate prices have restrained conver-sion of latent demand into actual purchases. This has led to weakness in fresh investments in housing.
Infrastructure development: Emphasis of the government on development of dedicated freight corridors, upgrading and building of greenfield airport projects and ports were expected to drive consumption. But this has not happened because of slow pace of execution of infrastructure projects.
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Cos hold up prices by controlling output Excess capacity may keep prices under check
S lowdown in the economy has not prevented the cement industry from keeping prices firm, but huge capacity addition expected in the coming two years may test the sector’s resilience amid price and margin pressures.
The beginning of the current financial year was marked by low cement off-take in India. As the year progressed, cement consumption, as re-flected by despatches of companies, improved. While despatches in the first half of the financial year rose a moderate 3.6% compared with a year ago, consumption rose sharply post monsoon. Cement despatches rose 10.6% in October-December, resulting in a growth of 5.9% in the nine months ended December.
On a sequential basis, there was an improvement in despatches in each of the three quarters of 2011-12 (April-March).
While October-December growth looks good, it must be noted that low base of the previous year played a significant role in boosting the numbers. Volumes had recorded a year-on-year decline in No-vember and December of 2010, resulting in growth in October-December 2011 looking robust.
Other reasons for improvement in despatches include:
Moderate revival of demand in regions other than the south
Year-end volume push by cement majors
Re-stocking by dealers on expectations of rise in demand from this month
Demand for cement is also seasonal in nature. Usually, monsoon is the slack period for the cement industry as construction activity slows down.
Demand in the current financial year slowed in April-December as major demand drivers grew at a moderate pace. Key demand driv-ers in the cement sector include:
Housing sector: It accounts for a large portion of domestic demand. Rise in urbanisation, an increasing number of house-holds and higher employment are primarily driving demand for housing. However, uncertainty about future incomes, rising interest rates and firm real estate prices have restrained conver-sion of latent demand into actual purchases. This has led to weakness in fresh investments in housing.
Infrastructure development: Emphasis of the government on development of dedicated freight corridors, upgrading and building of greenfield airport projects and ports were expected to drive consumption. But this has not happened because of slow pace of execution of infrastructure projects.
15 October 2011
Dhanlaxmi Bank,Exit on Rally:: ICICI Securities,
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A I B O C a l l e g a t i o n s l e a d t o s t o c k t a n k i n g 1 0 % . . .
As per news reports, the All-India Bank Officers Confederation (AIBOC)
has submitted a memorandum to the RBI alleging that Dhanlaxmi Bank
has manipulated accounts and provisioning, has a mismatch in assetliability resources, maintains poor capital adequacy ratio and has huge
dependence on call money borrowing. It cautioned against higher NPA
and accused the bank of window dressing its books to inflate profits.
Dhanlaxmi’s management has rejected these allegations regarding them
as baseless. According to Bipin Kabra, CFO, “The union is getting
marginalised every year. Currently, less than 10% workers are in AIBOC.
Our current capital adequacy is at around 10%. We see non-performing
assets dropping every quarter”. Given the seriousness of these
allegations and no response from the RBI on the issue we are cautious
on the bank and would advise investors to avoid the stock. For
investors holding the stock we would recommend exiting the stock on
rallies.
ƒ Long-term asset funding through shorter duration liabilities…
We have analysed the maturity profile of Dhanlaxmi Bank’s assets and
liabilities (FY11 data) to ascertain if there is a mismatch. We infer that
while ~40% of advances and investments lie in the maturity bucket of
three years and above, only 2.5% of deposits and borrowings lie in
the same (refer Exhibit 1). This implies that even though bank’s assets
(especially advances) are heavily tilted towards longer term, it is being
financed through short-term liabilities, which is a cause for concern.
V a l u a t i o n
Even though the stock has corrected by ~10% in a single session, we are
cautious on it. The bank reported a dismal performance last quarter with
profits declining 43.6% YoY to | 3.4 crore. Despite an estimated business
growth of 35% CAGR and PAT growth of 59% CAGR over FY11-13E,
return ratios are expected to remain depressed with RoA at 0.3% and RoE
at 5.3% by FY13E. Moreover, the recent deferment of its capital raising
plan had also led to an overhang on the stock. However, in light of
AIBOC’s allegations we would recommend avoiding the stock until more
clarifications or facts materialise. We would advise investors already
holding the stock to exit on rallies.
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A I B O C a l l e g a t i o n s l e a d t o s t o c k t a n k i n g 1 0 % . . .
As per news reports, the All-India Bank Officers Confederation (AIBOC)
has submitted a memorandum to the RBI alleging that Dhanlaxmi Bank
has manipulated accounts and provisioning, has a mismatch in assetliability resources, maintains poor capital adequacy ratio and has huge
dependence on call money borrowing. It cautioned against higher NPA
and accused the bank of window dressing its books to inflate profits.
Dhanlaxmi’s management has rejected these allegations regarding them
as baseless. According to Bipin Kabra, CFO, “The union is getting
marginalised every year. Currently, less than 10% workers are in AIBOC.
Our current capital adequacy is at around 10%. We see non-performing
assets dropping every quarter”. Given the seriousness of these
allegations and no response from the RBI on the issue we are cautious
on the bank and would advise investors to avoid the stock. For
investors holding the stock we would recommend exiting the stock on
rallies.
ƒ Long-term asset funding through shorter duration liabilities…
We have analysed the maturity profile of Dhanlaxmi Bank’s assets and
liabilities (FY11 data) to ascertain if there is a mismatch. We infer that
while ~40% of advances and investments lie in the maturity bucket of
three years and above, only 2.5% of deposits and borrowings lie in
the same (refer Exhibit 1). This implies that even though bank’s assets
(especially advances) are heavily tilted towards longer term, it is being
financed through short-term liabilities, which is a cause for concern.
V a l u a t i o n
Even though the stock has corrected by ~10% in a single session, we are
cautious on it. The bank reported a dismal performance last quarter with
profits declining 43.6% YoY to | 3.4 crore. Despite an estimated business
growth of 35% CAGR and PAT growth of 59% CAGR over FY11-13E,
return ratios are expected to remain depressed with RoA at 0.3% and RoE
at 5.3% by FY13E. Moreover, the recent deferment of its capital raising
plan had also led to an overhang on the stock. However, in light of
AIBOC’s allegations we would recommend avoiding the stock until more
clarifications or facts materialise. We would advise investors already
holding the stock to exit on rallies.
25 September 2011
Dhanlaxmi Bank: Fundamentals poised for growth - Capital raising to be on radar::SMC
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Investment phase over – Focus on improving productivity
Dhanlaxmi bank has achieved a growth in advance and deposit at a faster pace compared to industry in FY10
and FY11 (advances grew by 57% in FY10 and 81% in FY11). Post completion of investment phase, the bank will
now focus on increasing business without additional cost to compete with the other players. We believe that the
bank will grow above industry during FY11 - FY13 with advances growing at a CAGR of 38.4% as the new
branches rolled out in FY09 and FY10 will break even in FY12 (retail and SME loans to contribute to the
incremental growth).
Shift to high yielding loans and low cost deposits likely to partially offset margin pressure
We expect the bank to focus on SME segment thereby increasing its proportion to approximately 25% of
advance by FY13 which will help the bank to partially offset pressure on margin in the near term. On the other
hand, increase in low cost deposits (CASA as well as NRI deposit) will enable the bank to withstand pressure from
rising rates in the near term and improve NIMs in the long run.
Fee based income to fuel growth
We believe that the bank will grow its fee based income owing to introduction of new products and services
towards retail (gold coins retailing, 3 in 1 trading account) and SME clients. Consequently, we expect fee based
income to grow at 30.4% CAGR over FY11 – FY13; processing fees and third party distribution being the major
contributor to the incremental growth.
Improvement in efficiency - Increased profitability
Dhanlaxmi Bank has witnessed a rise in cost to income ratio due to higher cost related to addition of employee,
implementation of IT infrastructure and rolling out new branches. Going forward, we expect cost to income ratio
to improve from 83.6% in FY11 to 77.0% in FY12 and 70.5% in FY13, as the bank focuses on improving
productivity without a substantial increase in its cost.
Credit cost likely to increase – Asset quality remains buoyant
Dhanlaxmi Bank has been able to improve its asset quality through continuous focus on recovery mechanism
(setting up of recovery cell with 100 employees) which led to a decline in GNPA from 2.9% in FY08 to 0.7% in
FY11. Going forward, we expect the bank to witness an increase in its credit cost due to focus towards retail and
SME segment, however, we do not expect a substantial deterioration in asset quality as the bank has a larger
proportion of retail loans exposed towards asset backed loans.
Outlook and Valuation
Post completion of investment phase made in FY09 – FY11, we believe that the management will now focus to
reap benefits on the same by improving efficiency and thereby return ratios in the medium to long term.
Therefore, we remain optimistic on the fundamentals of the bank in the long run.
In light of the recent correction in the stock price, the stock seems to be an attractive investment opportunity.
Currently, Dhanlaxmi Bank trades at 0.78x FY12E P/B and 0.74x FY13E P/B. We have arrived at an
'Outperformer' recommendation with a target price of INR105 by assigning one year forward P/ABV multiple
of 1.01x FY13E (re-rating will be considered once capital raising plans see some development) implying a
potential upside of 31.6%.
Key risks to our valuation are; delay in capital raising activity and higher than anticipated degradation in asset
quality. Our model is based on assumption that the bank is likely to witness a rise in efficiency in FY11 – FY13,
any variance in the actual performance compared to estimates could impact the anticipated profitab
India Equity Research Reports, IPO and Stock News
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Investment phase over – Focus on improving productivity
Dhanlaxmi bank has achieved a growth in advance and deposit at a faster pace compared to industry in FY10
and FY11 (advances grew by 57% in FY10 and 81% in FY11). Post completion of investment phase, the bank will
now focus on increasing business without additional cost to compete with the other players. We believe that the
bank will grow above industry during FY11 - FY13 with advances growing at a CAGR of 38.4% as the new
branches rolled out in FY09 and FY10 will break even in FY12 (retail and SME loans to contribute to the
incremental growth).
Shift to high yielding loans and low cost deposits likely to partially offset margin pressure
We expect the bank to focus on SME segment thereby increasing its proportion to approximately 25% of
advance by FY13 which will help the bank to partially offset pressure on margin in the near term. On the other
hand, increase in low cost deposits (CASA as well as NRI deposit) will enable the bank to withstand pressure from
rising rates in the near term and improve NIMs in the long run.
Fee based income to fuel growth
We believe that the bank will grow its fee based income owing to introduction of new products and services
towards retail (gold coins retailing, 3 in 1 trading account) and SME clients. Consequently, we expect fee based
income to grow at 30.4% CAGR over FY11 – FY13; processing fees and third party distribution being the major
contributor to the incremental growth.
Improvement in efficiency - Increased profitability
Dhanlaxmi Bank has witnessed a rise in cost to income ratio due to higher cost related to addition of employee,
implementation of IT infrastructure and rolling out new branches. Going forward, we expect cost to income ratio
to improve from 83.6% in FY11 to 77.0% in FY12 and 70.5% in FY13, as the bank focuses on improving
productivity without a substantial increase in its cost.
Credit cost likely to increase – Asset quality remains buoyant
Dhanlaxmi Bank has been able to improve its asset quality through continuous focus on recovery mechanism
(setting up of recovery cell with 100 employees) which led to a decline in GNPA from 2.9% in FY08 to 0.7% in
FY11. Going forward, we expect the bank to witness an increase in its credit cost due to focus towards retail and
SME segment, however, we do not expect a substantial deterioration in asset quality as the bank has a larger
proportion of retail loans exposed towards asset backed loans.
Outlook and Valuation
Post completion of investment phase made in FY09 – FY11, we believe that the management will now focus to
reap benefits on the same by improving efficiency and thereby return ratios in the medium to long term.
Therefore, we remain optimistic on the fundamentals of the bank in the long run.
In light of the recent correction in the stock price, the stock seems to be an attractive investment opportunity.
Currently, Dhanlaxmi Bank trades at 0.78x FY12E P/B and 0.74x FY13E P/B. We have arrived at an
'Outperformer' recommendation with a target price of INR105 by assigning one year forward P/ABV multiple
of 1.01x FY13E (re-rating will be considered once capital raising plans see some development) implying a
potential upside of 31.6%.
Key risks to our valuation are; delay in capital raising activity and higher than anticipated degradation in asset
quality. Our model is based on assumption that the bank is likely to witness a rise in efficiency in FY11 – FY13,
any variance in the actual performance compared to estimates could impact the anticipated profitab
03 August 2011
Buy Dhanlaxmi Bank; Target : Rs 119 ::ICICI Securities
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N e a r t e r m h a z y , l o n g- t e r m * p r o m i s i n g …
Dhanlaxmi Bank reported disappointing Q1FY12 results led by a 29.5%
QoQ fall in NII from | 90.4 crore to | 63.8 crore (lower than our
expectation of | 82 crore). The bank avoided growth in the loan book due
to uncertain market conditions while a rise in cost of funds resulted in a
poor NII show in Q1FY12. NIM was at 2% vs. 2.6% in Q4FY11. An MTM
hit of | 7 crore (total provisions | 9.6 crore in quarter) was an overhang.
PAT was at | 3.4 crore vs. estimated | 7.5 crore, down 44% YoY.
The management has strongly articulated the need to concentrate on
bottomline growth and, thereby, improve return ratios. Phase I of the
story rounding around change of management and processes seems to
be in the last leg. This will show the way for lower cost to income ratio
and higher PAT.
ƒ Growth slowing down, PCR @66% with asset quality improving…
The CAR of the bank stands at 11.4% while Tier I capital is at 9.3%. The
bank is capitalised to support business growth only for a couple of
quarters. The management has guided that fund raising is on track.
Also, the provision coverage ratio is 65.8%. The bank requires another |
2.7 crore of provision in Q2FY12 to reach 70% PCR, which is mandated.
The asset quality of the bank is improving steadily with GNPA declining
from | 76 crore in Q1FY11 to | 67 crore in Q4FY11 and now at | 61
crore in Q1FY11. Simultaneously, NNPA has also improved to | 21
crore. The bank is witnessing higher recoveries compared to fresh
slippages, which has enabled it to improve the NPA situation.
ƒ Cost to income ratio to stay high…
The bank added 484 employees in Q1FY12 (core employee only 70, rest
sales employee), which has resulted in higher staff cost QoQ at | 61
crore. The cost to income ratio was as high as 87.6% in Q1FY12 on the
back of poor NII show and increasing staff cost. We expect the C/I ratio
to remain at elevated levels of 80% for FY12 and 78% for FY13 as the
bank was unable to show an improvement in its performance.
V a l u a t i o n
The bank is in an investment phase and equity dilution will impact return
ratios. We see 59% CAGR in PAT over FY11-13E. We have revised our
target from |122 to |118 due to lower than estimated PAT.
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N e a r t e r m h a z y , l o n g- t e r m * p r o m i s i n g …
Dhanlaxmi Bank reported disappointing Q1FY12 results led by a 29.5%
QoQ fall in NII from | 90.4 crore to | 63.8 crore (lower than our
expectation of | 82 crore). The bank avoided growth in the loan book due
to uncertain market conditions while a rise in cost of funds resulted in a
poor NII show in Q1FY12. NIM was at 2% vs. 2.6% in Q4FY11. An MTM
hit of | 7 crore (total provisions | 9.6 crore in quarter) was an overhang.
PAT was at | 3.4 crore vs. estimated | 7.5 crore, down 44% YoY.
The management has strongly articulated the need to concentrate on
bottomline growth and, thereby, improve return ratios. Phase I of the
story rounding around change of management and processes seems to
be in the last leg. This will show the way for lower cost to income ratio
and higher PAT.
ƒ Growth slowing down, PCR @66% with asset quality improving…
The CAR of the bank stands at 11.4% while Tier I capital is at 9.3%. The
bank is capitalised to support business growth only for a couple of
quarters. The management has guided that fund raising is on track.
Also, the provision coverage ratio is 65.8%. The bank requires another |
2.7 crore of provision in Q2FY12 to reach 70% PCR, which is mandated.
The asset quality of the bank is improving steadily with GNPA declining
from | 76 crore in Q1FY11 to | 67 crore in Q4FY11 and now at | 61
crore in Q1FY11. Simultaneously, NNPA has also improved to | 21
crore. The bank is witnessing higher recoveries compared to fresh
slippages, which has enabled it to improve the NPA situation.
ƒ Cost to income ratio to stay high…
The bank added 484 employees in Q1FY12 (core employee only 70, rest
sales employee), which has resulted in higher staff cost QoQ at | 61
crore. The cost to income ratio was as high as 87.6% in Q1FY12 on the
back of poor NII show and increasing staff cost. We expect the C/I ratio
to remain at elevated levels of 80% for FY12 and 78% for FY13 as the
bank was unable to show an improvement in its performance.
V a l u a t i o n
The bank is in an investment phase and equity dilution will impact return
ratios. We see 59% CAGR in PAT over FY11-13E. We have revised our
target from |122 to |118 due to lower than estimated PAT.
01 May 2011
Hold Dhanlaxmi Bank; Return ratio improvement to take a while…Target :Rs140:: ICICI Securities,
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Return ratio improvement to take a while…
The initial investment phase of the bank (FY10) has started yielding fruit
(in FY11) and no major investments are expected in FY12E. The current
capacity created is capable of achieving business mix of | 30000-35000
crore, as per the management. This would enable the bank to report
higher PAT. The next leg of investment phase is expected to begin
thereafter, since the bank aims to reach a tally of 450-500 branches (275
currently) in the coming three or four years. We expect 59% CAGR in PAT
over FY10-13E to | 94 crore.
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Return ratio improvement to take a while…
The initial investment phase of the bank (FY10) has started yielding fruit
(in FY11) and no major investments are expected in FY12E. The current
capacity created is capable of achieving business mix of | 30000-35000
crore, as per the management. This would enable the bank to report
higher PAT. The next leg of investment phase is expected to begin
thereafter, since the bank aims to reach a tally of 450-500 branches (275
currently) in the coming three or four years. We expect 59% CAGR in PAT
over FY10-13E to | 94 crore.
27 April 2011
Dhanlaxmi Bank | Margins expand but return ratios remain subdued :: JP Financials
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Margins expand but return ratios remain subdued
„ 4QFY11 net profit at `112mn: Dhanlaxmi Bank (DHLBK) almost doubled its
4Q11 net profit to `112mn (c.16% ahead of `96mn JMFe) on a sequential
improvement in margins and higher non–interest income growth. Margin
expanded 30bps YoY and 40bps QoQ to 3.0%. Loan growth remained strong
at 81% YoY while asset quality improved with 13% YoY decline (18% QoQ) in
absolute gross NPLs. Cost ratios remained at elevated levels while return
ratios were subdued with 4Q11 (annualised) ROA of 0.33%.
„ Retail segment drives healthy 81% YoY loan growth: DHLBK reported
strong 81% YoY loan growth (17% QoQ; c.4x of system growth) at `90.7bn,
driven mainly by retail segment. The bank is focusing on retail segment since
the last one year due to which the proportion of retail loans went up to 41% in
4Q11 vs 16% in 4Q10. Proportion of corporate banking group declined to 39%
(64% in 4Q10) while SME/TAG remained stable at 15%. Retail loan growth (up
4.6x YoY and 26% QoQ) was driven by gold loans (constitutes c.34% of retail
loan book), mortgages/LAP (c.21%) and vehicle financing (c.30%). LDR
remained stable at 72% vs 71% in 4Q10 and 74% in 3Q11. CASA mix was
stable at 23% vs 22% in 4Q10 and 20% in 3Q11. The bank expects SME and
retail segment to drive c.75% loan growth in FY12E.
„ Sequential margin expansion of 40bps (30bps YoY) drives 106% YoY NII
growth: NII grew 106% YoY (23% QoQ) driven by loan growth and margin
expansion. Reported margin expanded 40bps sequentially (30bps YoY) to
3.0% in 4Q11 driven by a) increased proportion of retail loans, b) 270bps
sequential increase in CASA, c) asset re-pricing. Management aims to
maintain margins in FY12E.
„ Opex up 68% YoY (21% QoQ): Costs increased 69% YoY and 21% QoQ in
4Q11 led by 70% YoY (42% QoQ) jump in other opex. Employee expenses
grew 68% YoY (8% QoQ) while employee count declined by 90 sequentially to
4,260. During the year, the bank provided `51.1mn for additional pension
and gratuity liability and `15.3mn for AS15. It did not add any branch during
the quarter - branch count stands at 275.
„ Asset quality improves sequentially: Asset quality improved as gross NPLs
in absolute terms declined by 13% YoY and 18% sequentially. Delinquencies
during FY11 declined to 81bps vs 165bps in FY10. 4Q11 gross NPLs declined
to 0.74% (4Q10:1.54% and 3Q11:1.05%) and net NPLs to 0.30% (4Q10: 0.84%
and 3Q11: 0.52%). Coverage ratio improved to 59% vs 46% in 4Q10 and 51%
in 3Q11. RBI has extended deadline for increasing the PCR to 70% till 30
Sept’11.
„ 4Q11 CAR at 11.8%; to raise `5.0bn equity capital: DHLBK had CAR of
11.8%, with tier I of 9.4% as of 4Q11. It intends to raise `5.0bn equity capital
over next 3-4 months to support its growth objectives.
„ Return ratios remain subdued: Return ratios remained subdued with 4Q11
ROA of 0.33%. For FY11, ROA was at 0.23% with ROE of 4.1%. The stock
trades at 1.3x FY11 book.
„ Estimates and TP under review: Our earning estimates and TP for DHLBK are
under review.
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Margins expand but return ratios remain subdued
„ 4QFY11 net profit at `112mn: Dhanlaxmi Bank (DHLBK) almost doubled its
4Q11 net profit to `112mn (c.16% ahead of `96mn JMFe) on a sequential
improvement in margins and higher non–interest income growth. Margin
expanded 30bps YoY and 40bps QoQ to 3.0%. Loan growth remained strong
at 81% YoY while asset quality improved with 13% YoY decline (18% QoQ) in
absolute gross NPLs. Cost ratios remained at elevated levels while return
ratios were subdued with 4Q11 (annualised) ROA of 0.33%.
„ Retail segment drives healthy 81% YoY loan growth: DHLBK reported
strong 81% YoY loan growth (17% QoQ; c.4x of system growth) at `90.7bn,
driven mainly by retail segment. The bank is focusing on retail segment since
the last one year due to which the proportion of retail loans went up to 41% in
4Q11 vs 16% in 4Q10. Proportion of corporate banking group declined to 39%
(64% in 4Q10) while SME/TAG remained stable at 15%. Retail loan growth (up
4.6x YoY and 26% QoQ) was driven by gold loans (constitutes c.34% of retail
loan book), mortgages/LAP (c.21%) and vehicle financing (c.30%). LDR
remained stable at 72% vs 71% in 4Q10 and 74% in 3Q11. CASA mix was
stable at 23% vs 22% in 4Q10 and 20% in 3Q11. The bank expects SME and
retail segment to drive c.75% loan growth in FY12E.
„ Sequential margin expansion of 40bps (30bps YoY) drives 106% YoY NII
growth: NII grew 106% YoY (23% QoQ) driven by loan growth and margin
expansion. Reported margin expanded 40bps sequentially (30bps YoY) to
3.0% in 4Q11 driven by a) increased proportion of retail loans, b) 270bps
sequential increase in CASA, c) asset re-pricing. Management aims to
maintain margins in FY12E.
„ Opex up 68% YoY (21% QoQ): Costs increased 69% YoY and 21% QoQ in
4Q11 led by 70% YoY (42% QoQ) jump in other opex. Employee expenses
grew 68% YoY (8% QoQ) while employee count declined by 90 sequentially to
4,260. During the year, the bank provided `51.1mn for additional pension
and gratuity liability and `15.3mn for AS15. It did not add any branch during
the quarter - branch count stands at 275.
„ Asset quality improves sequentially: Asset quality improved as gross NPLs
in absolute terms declined by 13% YoY and 18% sequentially. Delinquencies
during FY11 declined to 81bps vs 165bps in FY10. 4Q11 gross NPLs declined
to 0.74% (4Q10:1.54% and 3Q11:1.05%) and net NPLs to 0.30% (4Q10: 0.84%
and 3Q11: 0.52%). Coverage ratio improved to 59% vs 46% in 4Q10 and 51%
in 3Q11. RBI has extended deadline for increasing the PCR to 70% till 30
Sept’11.
„ 4Q11 CAR at 11.8%; to raise `5.0bn equity capital: DHLBK had CAR of
11.8%, with tier I of 9.4% as of 4Q11. It intends to raise `5.0bn equity capital
over next 3-4 months to support its growth objectives.
„ Return ratios remain subdued: Return ratios remained subdued with 4Q11
ROA of 0.33%. For FY11, ROA was at 0.23% with ROE of 4.1%. The stock
trades at 1.3x FY11 book.
„ Estimates and TP under review: Our earning estimates and TP for DHLBK are
under review.
26 January 2011
Buy Dhanlaxmi Bank Rapid business growth; Anand Rathi
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Dhanlaxmi Bank
Rapid business growth; maintain Buy
Dhanlaxmi’s 3QFY11 profit improved 450% yoy, led by 87.8%
yoy growth in NII and improved productivity. However, we
lower our FY11e and FY12e EPS by 37.4% and 34.2%
respectively, given the delay in materialization of expected
improved productivity and higher NPA provisions. We reduce
our target price to `152 from `240 due to lower RoE. We
maintain Buy as we expect rapid business growth, improving
NIM and productivity to double RoA by FY13e, to 0.6%.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Dhanlaxmi Bank
Rapid business growth; maintain Buy
Dhanlaxmi’s 3QFY11 profit improved 450% yoy, led by 87.8%
yoy growth in NII and improved productivity. However, we
lower our FY11e and FY12e EPS by 37.4% and 34.2%
respectively, given the delay in materialization of expected
improved productivity and higher NPA provisions. We reduce
our target price to `152 from `240 due to lower RoE. We
maintain Buy as we expect rapid business growth, improving
NIM and productivity to double RoA by FY13e, to 0.6%.
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