For 4QFY2011, Dena Bank reported moderate net profit growth of 14.5% yoy and a marginal 1.2% qoq to `157cr, in line with our estimates of `156cr. However other income growth was stronger than estimated which was offset by higher provisioning costs. We recommend a Buy rating on the stock.
Above industry business growth, but with higher slippages and lower NIMs: On a sequential as well as yoy basis, advances and deposits grew ahead of industry at 8.2% (26.4% yoy) and 6.2% (25.1% yoy), respectively. CASA deposits registered a strong 23.2% yoy growth. The CASA ratio remained stable at 35.4% sequentially. Notwithstanding stable CASA ratio and moderate increase in CD ratio, due to the higher cost of deposits qoq, the reported NIM declined by 18bp sequentially to 3.09%. Consequently, NII grew by marginal 1.0% qoq to `471cr. Sequential Non-interest income growth was stronger at 42.3% on account of higher recoveries and fee income. Gross NPA and Net NPA ratios remained stable at 1.9% and 1.2%, respectively. Slippages witnessed sharp increase during the quarter, with a slippage rate of 3.0% in 4QFY2011 compared to 1.2% in 3QFY2011 and 2.2% in FY2010.
Outlook and valuation: Dena Bank, with a strong CASA ratio of 35.4%, is better placed than peers to protect its NIM in a rising interest rate environment. After the equity capital infusion of about `540cr by the government, the bank's tier-I ratio has improved to 9.8%. At the CMP, the stock is trading at 4.8x FY2013E EPS of `21.3 and 0.7x FY2013E ABV of `138. We recommend a Buy rating on the stock with a Target Price of `121. We have assigned a target multiple of 0.9x FY2013E ABV, translating into a 18.8% upside from current levels.
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