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Dena Bank 4QFY2014 performance highlights and results update

May 28, 2014, Wednesday, 10:59 GMT | 05:59 EST | 14:29 IST | 16:59 SGT
Contributed by Angel Broking

Dena Bank reported weak asset quality performance during 4QFY2014, continuing the trend witnessed over the last seven quarters. On the operating performance front, while the NII grew moderate at 9.3% yoy, the non-interest income grew 15.7% yoy, thus enabling the bank to report an operating profit growth of 11.7% yoy to Rs.448cr. The provisioning expense for the quarter grew by 66.8% yoy to Rs.570cr, leading the bank to register a PBT level loss of Rs.123cr. But tax reversals to the tune of Rs.310cr enabled the bank to register an earnings growth of 49.0% yoy to Rs.187cr for the quarter.

Business growth picks up; Asset quality witnesses pressure: During 4QFY2014, the bank’s advance book grew at a healthy pace of 17.9% yoy, while deposits grew moderate at 13.2% yoy. Healthy loan growth was primarily aided by strong growth in the agriculture segment which rose by 30.1% and healthy growth in the MSME segment which grew by 23.8% yoy. CASA deposits grew moderate at 9.9% yoy. The CASA ratio for the bank decreased by 89bp qoq to 28.0%. The NIM for the bank decreased sequentially by 34bp to 2.3%. During 4QFY2014, the non-interest income (excluding treasury) grew strong by 70.7% yoy to Rs.261cr. Overall, non-interest income for the bank grew by 15.7% yoy to Rs.272cr. The bank continued to witness asset quality pressures, as slippages spiked sequentially at Rs.1,026cr (annualized slippage rate of 6.2%), compared to Rs.507cr in 3QFY2014 (annualized slippage rate of 3.1%). Recoveries and upgrades came in lower at Rs.247cr as compared to Rs.312cr in 3QFY2014. ARC sale during the quarter stood at Rs.535cr (Rs.236cr realized). The PCR (incl. technical write-offs) dipped by 784bp sequentially to 56.4%. As of 4QFY2014, the bank’s outstanding restructured book stood at ~Rs.7,637cr (as compared to Rs.7,043cr in 3QFY2014). The restructuring pipeline for the bank stands at Rs.300cr for 1QFY2015.

Outlook and valuation: Dena Bank has a structurally strong CASA franchise (with a majority of its branches being in rural and semi-urban areas of CASA rich western India), aiding a better NIM than peers. The bank has witnessed a marked decline in its CASA ratio from 34.5% as of 4QFY2012 to 28.0% as of 4QFY2014, which can be attributed to a) muted performance on CASA deposits front (CAGR of 7.7%) and b) healthy traction witnessed in term deposits (CAGR of 25.1%) required to fuel its aggressive loan book growth. Bank has aggressively grown its loan book over the past couple of years. At CMP stock trades at 0.7x FY2016E P/ABV. We recommend an Accumulate rating on the stock.