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Dena Bank Q3FY14 results update

February 13, 2014, Thursday, 05:11 GMT | 01:11 EST | 10:41 IST | 13:11 SGT
Contributed by Nirmal Bang

Dena Bank posted weak set of number for Q3FY14. Asset quality stress continued to impact the performance of the bank. The bank reported sequential improvement in NIMs led by increase in yield on advances and lower cost of funds. Tax write back restricted substantial decline in profitability.
- Loan book grew at 10.9% YoY and 7.9% on QoQ basis. Out of the total advances portfolio, MSME witnessed 25.4% YoY growth whereas Retail grew by 14.4% on YoY basis. Agri witnessed growth of 14.7% YoY.
- NIMs improved sequentially by 9 bps to 2.66% in Q3FY14 on the back of improvement in cost of funds and increase in yield on advances. Management expects NIMs to improve further; guided for 2.75% by Q4FY14.
- Non-interest income witnessed decline led by decline in treasury income. Commission and exchange income remained weak.
- Operating expenses grew by 32.5% YoY. The bank added 24 new branches taking the total branch network to 1533 in Q3FY14 and intends to open 81 more branches in Q4FY14 which is likely to keep opex at higher levels.
- Asset quality further deteriorated with slippages at Rs 507.2 cr. However, on account of up gradation of one large account (Rs 200 cr- Delhi Metro) GNPA and NNPA ratio slightly moderated. Slippages included Rs 332 cr from 6 major accounts. Management has hinted towards higher slippages for Q4FY14 as well.
- Restructuring done during the quarter stood at Rs 551 cr taking the total restructured book at 10.1% of the total advance book. Pipeline stands high at ~Rs 580 cr. Approximately Rs 900 cr got converted into bonds.
- Provisions increased to Rs 382 cr (vs Rs 335 cr in Q2FY14) owing to increase in provisioning for restructured assets and investment depreciation.
- Government infused Rs 700 cr in Dec 2013.
- Capital Adequacy ratio of the bank stood at 10.61%; however Tier I ratio still stands lower at 7.31%.
We are cautious by the increasing pressure on asset quality of the bank. Comparatively higher restructured book and huge restructuring pipeline and elevated slippages are likely to put a drag on the earnings. In addition, the bank’s capitalization remains weak. Given the current macroeconomic environment and mounting asset quality concerns, we do not see any meaningful recovery in the bank in the near term and expect the stock to remain under pressure. Considering this, we have further reduced our estimates for FY14E and now expect the bank to report a 42.2% decline in profitability in FY14E. Return ratios will remain subdued (RoE at 7.9% and RoA at 0.39%) in FY14E. Consequently, the stock will continue to remain an underperformer in the near term.
At CMP, Dena Bank is trading at a PE of 5.31x and 4.22x of FY14E and FY15E EPS and at an adjusted P/BV of 0.67x and 0.65x FY14E and FY15E Adj BV. Our target price stands at Rs 57; an upside of 6.8% from current levels. We continue to maintain our HOLD rating on the stock at current levels.