Dena Bank - 4QFY2011 Results Flash

Dena Bank announced its 4QFY2011 results today, registering moderate net profit growth of 14.5% yoy and marginal 1.2% qoq to Rs157cr,  inline with our estimates of Rs156cr. However other income growth was stronger than estimated which was offset by higher provisioning costs.

Key highlights:

·         Business growth momentum was strong with advances and deposits growth of 8.2% qoq and 6.2% qoq, respectively. On a yoy basis, advances and deposits grew by 26.4% and 25.1%, respectively.

·         NII grew by a healthy 44.5% yoy to Rs471cr. However on a sequential basis, NII growth was muted at 1% due sequential decline in calculated NIMs of ~20bp. Non-interest income growth was strong sequentially, registering a growth of 42.3% qoq.

·         Operating expenses increased by 39.8% yoy driven by a 55.9% yoy jump in employee expenses. During FY2011, the bank made provision for enhancement in gratuity limits of Rs16cr (1/5^th of total liability of Rs80cr). It also took a hit of Rs71cr towards additional liability for serving employees under the second pension option and Rs118cr towards liability for retired employees. Balance liability carried forward for gratuity stands at Rs64cr and for Pension at Rs283cr. As a result of faster growth in operating expenses compared to operating income the cost-to-income ratio of the bank increased to 47.4% from 44.1% in 4QFY2010.

·         The asset quality of the bank deteriorated a bit during 4QFY2011 with the absolute Gross NPAs increasing by 4.8% qoq and Net NPAs rising by 5.7% qoq. Gross and Net NPA ratios remained sequentially stable at 1.9% and 1.2%, respectively. The provision coverage ratio stood at 74.6% (76.1% in 3QFY2011) including technical write-offs. Provisioning expenses were substantially higher, rising by 44.5% qoq and 50.2% yoy to Rs124cr (at ~0.7% of average assets vs ~0.4% of average assets during 9MFY2011)

·         The bank’s CAR improved to 13.4% on the back of capital infusion by the government.

At the CMP, the stock is trading at 0.8x FY2013E ABV. We maintain our Accumulate recommendation on the stock with a Target Price of Rs120. We may revise our estimates post interaction with the management.

Exhibit 1: 4QFY2011 Actual vs. Estimates
(Rs cr)	Actual	Estimates	Var (%)
Net interest income	471	472	(0.2)
Non-interest income	181	147	23.1
Operating income	652	619	5.3
Operating expenses	309	291	6.1
Pre-prov. profit	343	328	4.6
Provisions & contingencies	124	93	33.8
PBT	219	235	(6.8)
Prov. for taxes	62	79	(21.3)
PAT	157	156	0.5

  Source: Company, Angel Research

Exhibit 2: 4QFY2011 Performance summary

(Rs cr)	4QFY2011	3QFY2011	% chg (qoq)	4QFY2010	% chg  (yoy)
Interest earned	1,407	1,290	9.1	1,063	32.4
Interest expenses	936	823	13.7	737	27.0
Net interest income	471	466	1.0	326	44.5
Non-interest income	181	127	42.3	175	3.4
Operating income	652	593	9.9	501	30.1
Operating expenses	309	277	11.5	221	39.8
Pre-prov. profit	343	316	8.4	280	22.5
Provisions & contingencies	124	86	44.5	82	50.2
PBT	219	231	(5.0)	198	10.9
Prov. for taxes	62	76	(17.5)	61	2.8
PAT	157	155	1.2	137	14.5
EPS (Rs)	5.5	5.4	0.9	4.8	14.3
Cost-to-income ratio (%)	47.4	46.7		44.1
Effective tax rate (%)	28.4	32.7		30.7
Net NPA (%)	1.2	1.3		1.2

Source: Company, Angel Research

Result Update on Dabur India for 4QFY2011

Dabur posted a mixed set of numbers for the quarter. Top-line growth was above estimates at 30.6% yoy, primarily driven by volume growth, while earnings grew below our estimates by 8.5% yoy, affected by higher interest, depreciation expenses and tax rate. At the operating front, Dabur recorded a margin contraction of 53bp yoy, despite gross margin expansion and cut in ad spends (down 213bp yoy). We recommend Accumulate on the stock.

Volume growth steady in double digits: Dabur posted strong top-line growth of 30.6% yoy to `1,108cr, primarily led by volumes. In terms of segmental performance – CCD registered growth of 36.6% yoy, CHD grew by 12.1% yoy and IBD posted growth of 9.5% yoy for the quarter. Earnings registered disappointing growth of 8.5% yoy to `147cr, below our estimates, due to a sharp spike in interest, depreciation expenses and tax rate. On the operating front, Dabur delivered a margin contraction of 53bp yoy to 18.6%, resulting in 27% yoy growth in EBITDA to `205.6cr. Gross sales also include income from Hobi and Namaste entities.

Outlook and valuation: During FY2011–13E, we expect Dabur to post a CAGR of 21.6% in its top line, aided by steady volume growth in its core CCD categories of hair care, skin care and foods coupled with robust growth in its international business. We model in 20% yoy growth from the international business, contributing `1,030cr to revenue in FY2013E. We expect Dabur’s OPM to sustain at ~18% levels, after factoring in the loss on account of Egypt crisis, higher input cost and lower operating leverage. We have modeled in a healthy 20% CAGR in earnings, aided by robust top-line growth and consistent margins. At the CMP of `99, the stock is trading at attractive valuations of 20.5x FY2013E revised EPS of `4.8. Hence, we recommend Accumulate on the stock with a revised target price of `115.