Buy Dena Bank; target of Rs 104: Magnum

“Bank reported more than 62% year-on-year jump in its fourth quarter (Jan-March) net profit to Rs 255 crore, driven by one time tax refund. For the fiscal year 2011-12, net profit increased by 31% y-o-y to Rs 803 crore. Net interest income increased nearly 27% to Rs 598 crore. Dena Bank’s loan book grew at 25.5% YoY and 18.3% on QoQ basis. Out of the total advances portfolio,
MSME witnessed 22.22% YoY growth whereas Retail grew by 18.68% on YoY basis. However Management expects to sustain loan growth of 20%-22% going forward.”

"During the quarter, gross Non-Performing Asset ratio declined to 1.67% compared with 1.88% and net NPA ratio too dropped at 1.01% versus 1.10%. Most of the restructured loans were from sectors like State Electricity Boards, Aviation, Cement, and Textile. The bank reported lower slippages at 1.6% for FY12 compared to 2.1% for FY11 reflecting strong improvement in asset quality. According to Management, most of large-ticket accounts that were in pipeline have been accounted for in restructuring. NIMs stood at 3.21% in Q4FY12, as compared to 3.33% in Q3FY12 and 3.09% in Q4FY11. Going forward, Management has given the guidance of maintaining NIMs at 3% for FY13E. The bank’s total deposits grew by 20.18% YoY and 12.9% QoQ in Q4FY12. CASA deposits grew at 16.91% YoY and 11.5% on QoQ basis to Rs 26,590 crs. CASA as a % of total deposits stood at 34.46% in Q4FY12.” 

“Dena Bank is currently trading at a striking valuation amongst the Banking space. At CMP of Rs 85, it is trading at a PE of 3.17x of FY13E EPS and at an adjusted P/BV of 0.65x FY13E BV of Rs 131. We have valued the Bank at P/BV of 0.8x FY13E & maintain our BUY rating on the stock with a target price of Rs 104,” says Magnum research report.

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