Stock Market Result Update on Dena Bank for 2QFY2012 with an Neutral recommendation.
For 2QFY2012, Dena Bank registered healthy 20.5% yoy growth in its PAT to `194cr, above our estimates due to lower provisioning expenses than estimated by us. Reported NIM increased by 32bp qoq. The bank’s asset quality held up pretty well for the quarter. We recommend a Neutral rating on the stock.
Loan book shrinks marginally qoq; slippages surprise positively: The growth in business was slow during 2QFY2012, with advances declining by 0.3% qoq (up 18.0% yoy) and deposits growing by 1.6% qoq (20.1% yoy). On the back of lower growth in deposits, the bank was able to sequentially increase its CASA ratio by 45bp to 35.6%. Yield on advances increased by 64bp qoq to 12.0% in 2QFY2012, leading to a sequential improvement of 32bp in reported NIM to 3.2%. During 2QFY2012, non-interest income declined by 8.8% qoq to `113cr, mostly due to a 14.4% decline in fee income to `97cr. Recoveries were strong during 2QFY2012, registering 25.4% qoq growth (down 52.8% yoy). Treasury income also trebled to `4cr, owing to a low base. Asset quality of the bank held up pretty well, despite switchover of `50lakhs and below accounts to system-based NPA recognition during 2QFY2012. Gross NPA ratio stood at 1.93% (1.86% in 1QFY2012) and net NPA ratio stood at 1.15% (1.08% in 1QFY2012), as of 2QFY2012.
Outlook and valuation: Dena Bank, with a strong CASA ratio of 35.6%, is better placed than its peers to protect its NIM in a high interest rate environment.
After the equity capital infusion of about `540cr by the government, the bank's tier-I ratio has improved to 9.7%. At the CMP, the stock is trading at 0.6x FY2013E P/ABV, one of the cheapest among PSU banks. However, considering the hefty exposure to the power sector (~20% of the loan book), which might lead to some chunky NPAs or large restructuring in the books in the coming quarters, we recommend a Neutral rating on the stock, and would look to upgrade the stockonly once the near-term headwinds subside.
After the equity capital infusion of about `540cr by the government, the bank's tier-I ratio has improved to 9.7%. At the CMP, the stock is trading at 0.6x FY2013E P/ABV, one of the cheapest among PSU banks. However, considering the hefty exposure to the power sector (~20% of the loan book), which might lead to some chunky NPAs or large restructuring in the books in the coming quarters, we recommend a Neutral rating on the stock, and would look to upgrade the stockonly once the near-term headwinds subside.
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