Recommendations » India

Dena Bank 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Dena Bank registered healthy 20.3% yoy growth to Rs.187cr, above our estimates due to higher margin expansion and lower provisioning expenses than estimated by us. We recommend Buy on the stock.

Asset quality continues to impress: The pace of business picked up in 3QFY2012, with advances growing by 12.2% qoq (up 15.7% yoy) and deposits growing by 6.4% qoq (13.0% yoy). CASA deposits growth was relatively slower at 4.2% qoq (11.4% yoy), leading to a 72bp qoq (50bp yoy) decline in CASA ratio to 34.9%. Yield on advances for the bank increased by 22bp qoq to 12.2% in 3QFY2012, while cost of deposits increased by relatively lower 12bp, leading to a sequential improvement of 11bp in reported NIM to 3.3%. During 3QFY2012, non-interest income grew by 18.2% qoq to Rs.134cr, mostly due to strong performance in fee income (aided by traction in LCs, guarantees and inflows from forex income), which grew by 13.3% qoq (up 9.7% yoy) to Rs.124cr. Recoveries from written-off accounts were also strong at 19.6% qoq (down 44.2% yoy), while treasury income registered a strong sequential performance. Slippages (Rs.173cr) for the bank were under control during 3QFY2012, with annualized slippage ratio standing at 1.5%. Gross NPA ratio as of 3QFY2012 stood at 1.85% (1.93% in 3QFY2012), while net NPA ratio stood at 1.10% (1.15% in 2QFY2012). NPA provision coverage ratio, including technical write-offs remained healthy at 76.6%. The bank’s outstanding restructured book as of 3QFY2012 stands at Rs.1,800cr.

Outlook and valuation: Dena Bank has structurally a strong CASA ratio of 35%, aiding better NIM than peers. We were cautious on the bank’s asset quality; however, so far, the bank’s asset quality has held up reasonably well compared to peers and now considering the improving macro environment, we upgrade the stock to Buy with a target price of Rs.95.