Hold Dena Bank; target of Rs 125: Nirmal Bang

Nirmal Bang has recommended hold rating on Dena Bank with a target of Rs 125, in its February 1, 2013 research report.
 
“Dena Bank’s performance for Q3FY13 was slightly below expectations. Net interest income continued to witness moderation resulting from rationalization in rate of interest for the SME sector as the management aims to focus more on asset quality. The slippages were well under control but lower recoveries resulted in an increase in gross NPA. PAT declined 13.9% QoQ to Rs 206 cr in Q3FY13.
Dena Bank has emerged as a relatively better player compared to its peer group in tough and challenging times. Dena Bank has reported better asset quality in the form of lower slippages and restructuring in comparison to peers, CASA ratio above 30%+, healthy margins, higher provision coverage ratio and control over operating costs.”
 
“We expect Dena Bank to continue to demonstrate good performance driven by focus on its liability franchise and core fee income with operating efficiency. Increasing focus on high yield retail credit, strengthening of balance sheet and lower operating costs would improve efficiency and drive earnings going forward for Dena Bank. At CMP, it is trading at a PE of 4.28x and 3.77x of FY13E and FY14E EPS and at an adjusted P/BV of 0.87x and 0.75x FY13E and FY14E Adj BV. We continue to maintain our HOLD rating on the stock with target price of Rs 125 (0.85x FY14E Adj BV) indicating an upside of 14.0% from current levels.”
 
“Dena Bank’s loan book grew at 31.5% YoY and 7.1% on QoQ basis to Rs 63,040 cr in Q3FY13.  Management maintains their focus on credit growth with an aim of 20%+ advances growth in FY13 and ~22-25% CAGR over the next few years with focus more on retail and MSME segments. The bank has given incremental loans to only BBB and above rated entities.  The bank’s total deposits grew by 24.2% YoY and mere 1.6% QoQ in Q3FY13. CASA deposits grew at 10.3% YoY and de grew sequentially by 1.2% basis which resulted in dip in the CASA ratio to 31% from 31.9% in Q2FY13.  Net Interest Margin (NIM) stood at 2.88% in Q2FY13, as compared to 3.33% in Q3FY12 and 2.86% in Q2FY13.  Gross NPA ratio stood at 2.09% which was sequentially higher by 12 bps while Net NPA ratio stood at 1.31%.”
 
“The bank witnessed slippages of Rs 238 cr in Q3FY13 which was lower than Rs 288 cr of slippage in Q2FY13. Although there was decline in slippages, lower recoveries resulted in increase in gross NPA levels.  The restructured book stood at Rs 4,797 cr (7.6% of total advance book).  The Provisioning coverage ratio of the bank (including technical write off) stood at 70.57% in Q3FY13; although sequentially lower but still much better than its peer banks.  Capital Adequacy Ratio (CAR) of the Bank as on Q3FY13 stood at 11.47% with Tier I ratio of 7.61%,” says Nirmal Bang research report.

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