Dena Bank's 2QFY11 PAT grew 29% YoY to Rs1.6b : Motilal oswal,

Visit http://indiaer.blogspot.com/ for complete details �� ��


Dena Bank's 2QFY11 PAT grew 29% YoY to Rs1.6b, ahead of our estimate of Rs1.3b, driven by strong NII growth of 94% YoY.

Key highlights:
 NIM expanded 70bp QoQ to 3.5% (a positive surprise), led by (1) strong traction in CASA deposits (up 30% YoY), (2)
reduction in high cost deposits (down 13bp QoQ), and (3) higher yield on loans (up 66bp QoQ to 10.3%). Cost of
deposits declined 13bp QoQ and 82bp YoY to 5.54% while yield on loans was up 66bp QoQ to 10.3%.
 Interest income includes one-off interest income of Rs150m on recoveries from written-off accounts; even adjusted for
this, NIM remains superior at 3.4%+. Fee income grew strongly at 35% YoY and 16% QoQ.
 Asset quality was stable, with GNPAs increasing just 3% QoQ. The bank increased its PCR (calculated) from 30%
in 1QFY11 to 35% in 2QFY11. PCR including technical write-offs remained stable at ~75%.
 Business growth moderated, with loan growth of 21% YoY (down 4% QoQ) and deposit growth of 18% YoY (flat
QoQ). CD ratio declined to 68.3% from 71.1% a quarter ago. CASA mix improved to 39% v/s 37% in 1QFY11.
Valuation and view: We upgrade our earnings estimates by 18% for FY11 and 12% for FY12 in view of the strong core
operating performance and better than expected asset quality. We expect Dena Bank to report EPS of Rs21 in FY11 and
Rs24.5 in FY12. BV would be Rs102 in FY11 and Rs124 in FY12. The stock trades at 5.6x FY12E EPS and 1.1x FY12E
BV. RoA and RoE are likely to remain strong at ~1% and ~22%, respectively over FY11-12. Maintain Buy with a target
price of Rs175 (1.4x FY12E BV).






Business growth moderates QoQ; CD ratio declines to 68%
Loans grew 21% YoY (declined 4% QoQ) to Rs365b while deposits were up 18% YoY
(flat QoQ) to Rs535b. CD ratio declined to 68% v/s 71% in 1QFY11. Management expects
loan growth to pick up in 2HFY11, driven by agriculture, retail and infrastructure loans.
For FY11, management targets loan growth of 22%. We have modeled loan growth of
20% for FY11.
CASA deposits grew 30% YoY and 7% QoQ to Rs209b. CASA ratio improved 227bp
QoQ and 351bp YoY to 39.1%. Term deposits declined 3% QoQ and grew just 11% YoY
to Rs326b. Repayment of bulk deposits and strong traction in CASA deposits led to sharp
improvement in margins. Investments grew 16% YoY and 6% QoQ to Rs171b.


Margin expands 70bp QoQ to 3.52%
Better than expected margin performance led to strong NII growth of 94% YoY and 29%
QoQ to Rs4.7b (v/s our estimate of Rs3.8b). NIM expanded 70bp QoQ, led by strong
traction in CASA deposits, repayment of high cost deposits and re-pricing of low yield
loans. Cost of deposits declined 13bp QoQ and 82bp YoY to 5.54% while yield on loans
was up 66bp QoQ to 10.3%. With increase in interest rate, management expects pressure
on costs to build up in 2HFY11. It has increased focus on low cost deposits (to keep cost
under control) and targets CASA growth of 25%+ in FY11. With continued traction in low
cost deposits and increasing CD ratio (expect loan growth to improve in 2HFY11),
management targets NIM of 3.1-3.2% in FY11.
Strong core operating profit; core fee income improves, CI ratio declines
QoQ
The bank reported minor loss on its trading book as against profit of Rs99m in 1QFY11
and Rs379m in 2QFY10. Recoveries from written-off accounts was at Rs272m v/s Rs179m
in 1QFY11 and Rs193m 2QFY10. Despite sharp fall in treasury profit, overall non-interest
income grew 11% QoQ (declined 5% YoY), supported by strong traction in fee income.
Fee income (including forex) grew 35% YoY and 16% QoQ to Rs919m. Strong NII,
robust fee income growth and improved cost efficiencies led to core operating profit
growth of 186% YoY and 42% QoQ. Operating expenses increased 27% YoY and 13%
QoQ to Rs2.6b. Core CI ratio improved to 46.4% v/s 52% in 1QFY11 and 66% in 2QFY10.
Asset quality stable QoQ
Asset quality was stable QoQ, with GNPAs increasing only 3% QoQ in absolute terms.
However, in percentage terms, gross NPAs were up from 2.11% in 1QFY11 to 2.26%
due to decline in loan book. NNPAs remained stable QoQ. Slippages during the quarter
were at Rs1.4b (annualized slippage ratio of 1.6% v/s 2.7% in 1QFY11 and 2.2 in FY10).
Management expects slippages to be lower in 2HFY11. With strong recovery and
upgradations, it expects to contain GNPAs in absolute terms below Rs8b (current levels).
With strong profitability in 2QFY11, the bank increased its provision for NPA and increased
its PCR (calculated) from 30% in 1QFY11 to 35% in 2QFY11. PCR including technical
write-offs remains healthy at 75.4% v/s 74% a quarter ago.
Valuation and view
We upgrade our earnings estimates by 18% for FY11 and 12% for FY12 in view of the
strong core operating performance and better than expected asset quality. The bank has
requested for Rs13b capital, of which it expects to get Rs6b in 3QFY11. Post capital
infusion, GoI's holding is expected to increase to ~60%. We have not factored in capital
infusion in our estimates.
On the back of strong core operating performance, stable asset quality and expected
capital infusion (big hangover on growth plans), we expect the stock to outperform peers.
We expect Dena Bank to report EPS of Rs21 in FY11 and Rs24.5 in FY12. BV would be
Rs102 in FY11 and Rs124 in FY12. The stock trades at 5.6x FY12E EPS and 1.1x FY12E
BV. RoA and RoE are likely to remain strong at ~1% and ~22%, respectively over FY11-
12. Maintain Buy with a target price of Rs175 (1.4x FY12E BV).