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Dena Bank 3QFY2014 performance highlights and results update

February 18, 2014, Tuesday, 05:39 GMT | 00:39 EST | 11:09 IST | 13:39 SGT
Contributed by Angel Broking

Dena Bank reported a weak operating performance for 3QFY2014, while asset quality witnessed moderate pressures. NII grew moderately by 7.5% yoy, while non-interest income de-grew by 10.7%. Operating expenses grew 32.5% yoy, largely in-line with our expectations. Pre-Provisioning operating profit for the bank declined 16.3% yoy, in-line with our estimates. PCR for the bank dropped 665bp yoy to 63.9%, even as provisioning expenses more than doubled yoy to Rs.382cr. At the PBT level, the bank reported a loss of Rs.12cr (as against a profit of Rs.286cr in 3QFY2013). However tax reversals of Rs.79cr aided the bank to report a PAT of Rs.68cr.

Business growth remains moderate; Asset quality witnesses moderate pressure During 3QFY2014, the bank’s advance book grew at a moderate pace of 10.9% yoy, while deposits grew at a healthy pace of 13.2% yoy. Moderate loan growth was primarily aided by strong growth in agriculture & MSME segments which increased by 30.7% and 25.4% yoy respectively. Retail advances grew moderate at 14.4% yoy. CASA deposits grew at a weak pace of 5.6% yoy, as current deposits de-grew by 4.9% yoy, while savings deposits grew at a subdued pace of 8.7% yoy. CASA ratio for the bank dipped by 11bp qoq to 28.9%. NIM for the bank increased sequentially by 9bp at 2.7%. During 3QFY2014, the noninterest income (excluding treasury) de-grew by 2.3% yoy to Rs.123cr. Overall noninterest income for the bank de-grew by 10.7% yoy to Rs.129cr. The bank continued to witness asset quality pressures, as slippages came in at Rs.507cr (of which six chunky accounts contributed roughly Rs.340cr) as compared to Rs.479cr in 2QFY2014. Going forward, the Management expects slippages to remain elevated at ~Rs.400-Rs.500cr in the next quarter. Elevated slippages but better recoveries and upgrades restricted absolute increase in GNPA to 5.0% sequentially. As of 3QFY2014, the bank’s outstanding restructured book stood at ~Rs.7,043cr (as compared to Rs.7,080cr in 2QFY2014).

Outlook and valuation: Dena Bank has a structurally strong CASA franchise, but the bank has witnessed a marked decline in its CASA ratio from 34.9% as of 3QFY2013 to 28.9% as of 3QFY2014, which can be attributed to a) muted performance on CASA deposits front (CAGR of 7.9%) and b) healthy traction witnessed in term deposits (CAGR of 23.9%) required to fuel its aggressive loan book growth. Despite challenging macro fundamentals, the bank has aggressively grown its loan book over the last couple of years. We are cautious on the bank’s asset quality performance, as in case with the peer banks, given the weak macro-economic backdrop. We recommend a Neutral rating on the stock.

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