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Dena Bank Q4FY14 results update

May 20, 2014, Tuesday, 07:13 GMT | 03:13 EST | 11:43 IST | 14:13 SGT
Contributed by Nirmal Bang

Dena Bank posted another weak set of number for Q4FY14. Asset quality stress continued to impact the performance of the bank. The bank reported decline in NIMs both QoQ and YoY led by decline in yield on advances and higher interest reversals on account of slippages. Provisions continued to remain on the higher end. Tax write back was the only saving grace which restricted substantial decline in profitability. PAT increased 49.0% YoY to Rs 187 cr. For FY14, PAT declined 31.9% to Rs 552 cr. Dena Bank declared dividend of Rs 2.2 per share.

- Loan book grew at 17.9% YoY and 11% on QoQ basis. Out of the total advances portfolio, MSME witnessed 23.8% YoY growth whereas Retail grew by 25.7% on YoY basis. Agri witnessed growth of 30.1% YoY. Management is aggressive on growth and expects around 20% loan growth for FY15E. However, we expect loan growth to witness CAGR of 16.8% in FY15-16E.

- NIMs declined to 2.32% in Q4FY14 reflecting higher interest reversal on account of slippages and decline in yield on advances. For FY14, NIMs stood at 2.52%. We expect NIMs to be at 2.4% for FY15E.

- Non-interest income witnessed increase led by recovery in written off account. However, commission and exchange income remained weak.

- Operating expenses increased 10.7% YoY. The bank added 100 new branches during the quarter taking the total branch network to 1633 in Q4FY14 and intends to open 150 more branches in FY15E which is likely to keep opex at higher levels.

- Asset quality further deteriorated with slippages at Rs 1026.3 cr (significantly higher than the run rate of 400-500 cr). Slippages included Rs 500 cr from 3 major accounts which are likely to be restructured in the next quarter. Management guided for Rs 400-500 cr slippages per quarter for FY15E.

- Restructuring done during Q4FY14 stood at Rs 400 cr (Rs 300 cr pertaining to AP discom) taking the total restructured book at 9.1% of total advance book.

- Pipeline for restructuring stands at ~Rs 300 cr.

- Provisions continued to remain on the higher end.

- Capital Adequacy ratio of the bank stood at 11.14%; however Tier I ratio still stands lower at 7.43%.

We are cautious by the increasing pressure on asset quality of the bank. Comparatively higher restructured book and elevated slippages are likely to put a drag on the earnings. In addition, the bank’s capitalization remains weak which is likely to impact growth. Moreover, the tax write back benefit will also not be available in FY15E. Considering this, we have reduced our estimates for FY15E and expect the bank to report a 30.7% decline in profitability in FY15E before reporting 46.4% increase in PAT in FY16E. Return ratios will remain subdued (RoE at 7.5% and RoA at 0.36%) in FY16E. At CMP, Dena Bank is trading at a PE of 10.98x and 7.5x of FY15E and FY16E EPS and at an adjusted P/BV of 0.91x and 0.66x FY15E and FY16E Adj BV. Our target price stands at Rs 88; an upside of 13.1% from current levels.