Buy Dena Bank; target of Rs 118: Nirmal Bang

“Dena Bank’s performance for Q4FY12 was in line with expectations with growth in both NII and other income. Despite high provisions made for Rs 1,600 crs restructuring in Q4FY12 and NPV loss for the entire year, PAT increased 36.5% QoQ and 62.3% YoY to Rs 254.8 crs in Q4FY12. The bank took benefit of Rs 70.4 crs of tax write back in Q4FY12. For FY12 PAT grew at 31.3% to Rs 803 crs.”

“Dena Bank’s loan book grew at 25.5% YoY and 18.3% on QoQ basis. Out of the total advances portfolio, MSME witnessed 22.2% YoY growth whereas Retail grew by 18.7% on YoY basis. Management expects to sustain loan growth of 20%-22% going forward. We have factored in loan growth of 20.7% for FY13E. 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 3% for FY13E. However, we expect NIMs to be at 2.9% for FY13E. The bank reported strong growth in its fee based income (47.0% QoQ; 34.9% YoY) and profit on sale of securities showed significant increase from 0.28 crs in Q4FY11 to Rs 19.3 crs in Q4FY12. Management expects this strong trend to continue and grow non-interest income at 20% for FY13E.”  Gross NPA ratio stood at 1.67% while Net NPA ratio came at 1.01%. The bank reported lower slippages at 1.6% for FY12 compared to 2.1% for FY11 reflecting strong improvement in asset quality. The bank’s restructured book increased by ~1600 crs and stood at around 3410 crs (6.0% of advances) from earlier 4% of advances. During the quarter the bank has restructured some stressed accounts (SEBs worth Rs 1,200 crs). According to Management, most of large-ticket accounts that were in pipeline have been accounted for in restructuring.”

“Comparatively stable NIMs, strengthening of core fee income, stable asset quality and operational efficiency are likely to boost Dena Bank’s core operating performance which in turn will help the bank to register stable return ratios going forward. We continue to remain positive on the stock at current levels.  Dena Bank is currently trading at a very attractive valuation amongst the banking business space. At CMP, it is trading at a PE of 3.24x of FY13E EPS and at an adjusted P/BV of 0.65x FY13E Adj BV. We maintain our BUY rating on the stock with a target price of Rs 118,” says Nirmal Bang research report.  

Public holding more than 90% in Indian cos

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