Dena Bank (Q4 FY13) – BUY
CMP Rs91, Target price Rs105, Upside 15.4%
² After resilient performance in past, Dena Bank shocked the street with a steep fall in net profit by 39.1% qoq/50.7% yoy. Dip in Net Interest Income (8.6% qoq), sharp rise in Opex (25.4% qoq) driven by wage revision and significantly higher provision on investment depreciation severely hit the profitability. However, tax write-back of Rs669mn compensated for the weak operating performance to some extent.
² Dena Bank’s gross advances grew by 5.4% qoq/16.3% yoy, far below our expectation. As expected, the growth was largely driven by MSME segment (12.6% qoq/28.7% yoy). On the other hand, Corporate and Retail segments reported a single digit annual growth of 9.5% and 6.1% respectively. Healthy growth was witnessed in Agricultural lending (21.2%) during the year largely driven by Direct Agriculture segment (36.7% yoy). Deposits grew at a robust pace registering a growth of 14.5% qoq/26% yoy, much ahead of advances, resulting in steep decline in Credit/Deposit ratio (by 6ppt qoq to 68%). A substantial portion of this growth can be attributed to Retail TDs, given the fact that both CASA (28.8% in Q4 FY13) and Bulk Deposits’ (13% in Q4 FY13) share in total deposits has come down by 214bps and 600bps qoq respectively. Bulk Deposits’ share is expected to come down further in Q1 FY14. CASA mobilization has been challenging across the industry given the high TD rate environment and higher interest rate offered on savings balances by some of the peers (post deregulation). Anticipating a material decline in TD rates in the medium term, we expect revival in CASA growth in FY14-15. Management has guided credit and deposit growth of 16% and 18% respectively in FY14
² NIM declined by 42bps qoq to 2.46% in Q4 FY13 driven by fall in Yield on Funds (58bps qoq) higher than offset the decline in Cost of Funds (16bps qoq) and significant decrease in C/D ratio (6ppt qoq). Weak NII growth was led by interest reversal on NPAs and downward revision in base rate; together accounted for ~Rs620mn in Q4 FY13. Going forward, we expect NIM to remain stable anticipating stable asset quality and decline in lending yields (on account of interest rate down-cycle) being compensated by improved Cost of Funds (backed by healthy deposit profile).
² During the quarter, asset quality weakened marginally with GNPA ratio (2.19% in Q4 FY13) and NNPA ratio (1.39%) rising by 10bps and 8bps qoq respectively. Delinquency ratio rose from 1.6% in Q3 FY13 to 2.5% in Q4 FY13. However higher recoveries, up-gradations and write-offs (aggregating Rs2.7bn compared to Rs1.7bn in Q4 FY12) barred the GNPAs from rising significantly. Of the total slippages of Rs4bn in Q4 FY13, MSME was major contributor accounting for 44% of the total delinquencies, followed by Corporate (20%), Agriculture (20%) and Retail (16%). Outstanding restructured advances stood at 8.2% (Rs54bn) of total advances, restructuring advances to the tune of Rs4.7bn during Q4 FY13; of these, two major accounts pertained to Iron & Steel (Rs1,170mn) and Power (Rs750mn) sector. In addition to Tamil Nadu Electricity Board (Rs5.4bn), other restructuring of Rs2.5-3bn is expected Q1 FY14. With stringent credit appraisal norms and effective credit monitoring system, we expect recoveries to pick up in FY14. With various initiatives taken by the management, recoveries are expected to be strong in the coming quarters. PCR declined marginally by 1ppt qoq to 69.6%, relatively better than its peers.
² Non-interest income posted robust growth of 63% qoq. However, on yoy basis it was lower at 11.9%. Operating expenses grew by 25.4% sequentially driven by wage revision. Resultantly, C/I ratio shot up by 8ppt qoq to 49.7% in Q4 FY13. Dena Bank is expecting capital infusion from GoI in the near future to support its funding requirement.
² We believe stringent credit monitoring system and focus on strengthening its deposit franchise is likely to drive an improvement in the operating performance in the coming quarters. Dena Bank is still better than its peers on multiple parameters – lower GNPA ratio, high PCR, lower bulk-deposits share vis-à-vis lower valuation of 0.5x FY15E P/adj.BV. Thereby, we maintain BUY rating with a target price of Rs105.
Result table
| (Rs mn) |
Q4 FY13 |
Q3 FY13 |
% qoq |
Q4 FY12 |
% yoy |
| Total Interest Income |
23,043 |
22,640 |
1.8 |
19,559 |
17.8 |
| Interest expended |
(17,423) |
(16,491) |
5.7 |
(13,575) |
28.3 |
| Net Interest Income |
5,620 |
6,149 |
(8.6) |
5,984 |
(6.1) |
| Other income |
2,355 |
1,445 |
63.0 |
2,105 |
11.9 |
| Total Income |
7,974 |
7,594 |
5.0 |
8,088 |
(1.4) |
| Operating expenses |
(3,967) |
(3,163) |
25.4 |
(3,333) |
19.0 |
| Provisions |
(3,420) |
(1,566) |
118.4 |
(2,911) |
17.5 |
| PBT |
588 |
2,865 |
(79.5) |
1,844 |
(68.1) |
| Tax |
669 |
(801) |
(183.5) |
704 |
(5.0) |
| Reported PAT |
1,257 |
2,064 |
(39.1) |
2,548 |
(50.7) |
| EPS |
14.4 |
23.6 |
(39.1) |
29.1 |
(50.7) |
| Key Ratios |
Q4 FY13 |
Q3 FY13 |
chg qoq |
Q4 FY12 |
chg yoy |
| NIM (%) |
2.5 |
2.9 |
(0.4) |
3.2 |
(0.8) |
| Yield on advances (%) |
11.3 |
12.0 |
(0.6) |
12.0 |
(0.6) |
| Cost of Deposits (%) |
7.7 |
7.8 |
(0.0) |
7.4 |
0.3 |
| CASA (%) |
28.8 |
31.0 |
(2.1) |
34.5 |
(5.6) |
| C/D (x) |
0.68 |
0.74 |
(0.06) |
0.74 |
(0.06) |
| Non-interest income (%) |
29.5 |
19.0 |
10.5 |
26.0 |
3.5 |
| Non-interest income/Interest exp (%) |
13.5 |
8.8 |
4.8 |
15.5 |
(2.0) |
| Cost to Income (%) |
49.7 |
41.7 |
8.1 |
41.2 |
8.5 |
| Provisions/Income (%) |
13.5 |
6.5 |
7.0 |
13.4 |
0.0 |
| BV (Rs) |
156.7 |
141.7 |
15.0 |
126.9 |
29.8 |
| RoE (%) |
10.2 |
18.3 |
(8.1) |
24.6 |
(14.4) |
| RoA (%) |
0.5 |
0.9 |
(0.4) |
1.2 |
(0.7) |
| CAR (%) |
11.0 |
11.5 |
(0.4) |
11.5 |
(0.5) |
| Gross NPA (%) |
2.2 |
2.1 |
0.1 |
1.7 |
0.5 |
| Net NPA (%) |
1.4 |
1.3 |
0.1 |
1.0 |
0.4 |
Source: Company, India Infoline Research
Financial Summary
| Y/e 31 Mar (Rs m) |
FY12 |
FY13 |
FY14E |
FY15E |
| Total operating income |
26,832 |
30,386 |
35,679 |
42,613 |
| yoy growth (%) |
16.8 |
13.2 |
17.4 |
19.4 |
| Operating profit (pre-provisions) |
15,284 |
17,389 |
20,863 |
25,130 |
| Net profit |
8,031 |
8,103 |
9,825 |
12,445 |
| yoy growth (%) |
31.3 |
0.9 |
21.3 |
26.7 |
| EPS (Rs) |
22.9 |
23.1 |
28.1 |
35.6 |
| Adj. BVPS (Rs) |
106.3 |
126.9 |
147.8 |
171.3 |
| P/E (x) |
3.9 |
3.9 |
3.2 |
2.5 |
| P/ Adj. BV (x) |
0.9 |
0.7 |
0.6 |
0.5 |
| ROE (%) |
20.7 |
16.4 |
16.5 |
18.3 |
| ROA (%) |
1.0 |
0.8 |
0.8 |
0.9 |
| Dividend yield (%) |
3.9 |
5.2 |
6.6 |
7.7 |
| CAR (%) |
11.5 |
11.5 |
10.0 |
9.1 |
Source: Company, India Infoline Research