Buy Dena Bank; target of Rs 118: Nirmal Bang

Nirmal Bang is bullish on Dena Bank and has recommended buy rating on the stock with a target of Rs 118 in its July 30, 2012 research report.

“Dena Bank’s performance for Q1FY13 was above expectations. PAT increased 42.0% YoY to Rs 238.6 crs in Q1FY12. Dena Bank’s loan book grew at 39.1% YoY and 4.3% on QoQ basis resulting from balanced growth across all the sectors. Out of the total advances portfolio, MSME witnessed 31.3% YoY growth whereas Retail grew by 17.5% on YoY basis. Management expects to sustain loan growth of 20%+ going forward. We have factored in loan growth of 21.3% for FY13E and 20.7% for FY14E.”
“NIM) stood at 3.06% in Q1FY13, as compared to 3.21% in Q4FY12 and 2.9% in Q1FY12 which was in line with expectation. The main reason for decline in NIMs was primarily due to higher cost of funds (7.68% in Q1FY13 vs 7.06% in Q4FY12 and 6.7% in Q1FY12) and decline in CASA ratio. Going forward, Management has reiterated its guidance of maintaining NIMs 3%+ for FY13E. We expect NIMs to be at 3.0% for FY13E and FY14E. Dena Bank has been witnessing significant improvement in its cost to income ratio on a continuous basis. The bank is not targeting an aggressive branch expansion and is focusing more on improving the productivity of the existing branches which has led to an improvement in the bank’s cost to income ratio. Management is targeting to control its operating cost and keep the cost to income ratio below 40% mark. We expect cost to income ratio to be at 39.9% for FY13E and 39.2% for FY14E.”
“Gross NPA ratio stood at 1.8% which was sequentially higher by 13 bps while Net NPA ratio stood flat at 1.01%. The bank’s restructured book increased by ~850 crs and stood at around 4,255 crs (7.1% of advances) from earlier 6% of advances. During the quarter the bank has restructured stressed accounts (SEBs worth Rs 727 cr. According to Management, NPAs have scope for improvement over the coming quarters, as management does not foresee significant restructuring coming up and is focusing on recoveries.”
“Stable NIMs, focus on fee income, stable asset quality and improving productivity are likely to boost Dena Bank’s core operating performance which in turn will help the bank to register stable return ratios going forward.  At the current price of Rs. 91, it is trading at a PE of 3.23x and 2.67x of FY13E and FY14E EPS and at an adjusted P/BV of 0.68x and 0.56x FY13E and FY14E 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 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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