Buy Dena Bank; target of Rs 127: SPA Research

SPA Research is bullish on Dena Bank and has recommended buy rating on the stock with a target of Rs 127 in its July 31, 2012 research report.

“Dena Bank is a mid-size Public sector bank (Govt. holding 55.24%) with a strong franchise and large pan India network of 1358 branches, 11 extension counters and 545 ATMs. The bank has grown its business at a CAGR of 24% in the last five years to INR 1339 bn in FY12. With a strong deposit franchise, strengthening balance sheet, improving operational efficiency, stable asset quality and higher return ratios, we initiate coverage on DNBK with a BUY recommendation for a price target of INR 127.”
“DNBK has one of the lowest cost of deposits (CoD) among its peers due to its excellent liability profile (owing to its dependence on low cost deposits instead of bulk deposits). Strong presence in the rural and semi-urban areas (~56% of total branches), has enabled it to maintain its CASA ratio at ~35% levels over the past few years, which is amongst the best in industry. Its increasing focus to control cost of funds coupled with higher CD ratio and consistent reprising of portfolio, would assist the company in maintaining its margins at ~3.1% over the next two years. Strong presence in two highly industrialized states viz. Gujarat & Maharashtra (~61% of total branches) and changing product mix towards high yielding MSME & Retail segment should aid DNBK to continue growing at a steady pace. We expect it to clock total business of ~INR 1821 bn in FY14E, thereby registering a CAGR of 16.6% over FY12- 14E, led by 16.0% growth in deposits & 17.5% surge in advances.”
“With increasing expectations of rate cut coupled with declining crude oil prices, we believe the macro outlook for India is improving and PSBs are best placed to benefit from the same. DNBK with healthy operational parameters, strong deposit mix, stable asset quality, strong return ratios and earnings visibility, would be one of the biggest beneficiaries of the uptick. We expect DNBK to grow its NII & Net profit at a CAGR of 21.9% & 17.4% respectively over FY12-FY14E. At the current price of INR 92, the stock is trading at inexpensive valuations of 0.6x FY13E & 0.5x FY14E ABV. We recommend a BUY on the stock using an average of 0.7x FY14E P/ABV & three stage residual-income valuation method, to arrive at a target price of INR 127 (implying 0.7x FY14E ABV), an upside of 39%, over a period of 18 months,” says SPA Research report.    Shares held by Mutual Funds/UTI Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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