1. 4QFY2010 Result Update I Banking April 28, 2010 Dena Bank BUY CMP Rs83 Performance HighlightsTarget PriceRs98 Dena Bank reported a Net Profit growth of 23.3% yoy, ahead of our Investment Period 12 Months estimates, on account of a higher-than-expected improvement in the NIMs and better-than-expected income from recoveries, which boosted theStock Info non-interest income of the bank. We maintain a Buy rating on the stock. SectorBanking Better-than-expected NIMs and Recoveries: Sequential growth in advances (at Market Cap (Rs cr) 2,379 14.7%) exceeded deposit growth by 7.4%, resulting in a CD ratio of 69.1% (from 64.6% in 3QFY2010). The reported NIMs of the bank improved to 2.8%Beta1.0 in 4QFY2010, from 2.5% in 3QFY2010 and 2.4% in 4QFY2009. CASA 52 WK High / Low 93/36 deposits increased by 23.0% yoy to Rs18,320cr at the end of 4QFY2010. Non-interest income increased by 24.8% yoy to Rs175cr, driven by a strong Avg. Daily Volume1246665 traction in recoveries in written-off accounts, which stood at Rs70cr (against Rs28cr in 4QFY2010 and Rs22cr in 3QFY2010). The Gross NPA and Net Face Value (Rs) 10 NPA ratios improved to 1.8% (1.9% in 3QFY2010) and 1.2% (1.2% inBSE Sensex17,380 3QFY2010), respectively. The NPA provision coverage ratio stood at 78.0% including technical write-offs. The banks CAR stood at 12.7%, with Tier-INifty5,215 capital of 8.2% (forming 65% of the total CAR). During 1HFY2011, theReuters Code DENA.BO Government is expected to infuse capital of Rs600cr in the bank, Rs300cr each in the form of Equity and Preference Capital. The management alsoBloomberg CodeDBNK@IN expects to receive Rs700cr from the Government in the form of Preference Shareholding Pattern (%) Capital over FY2012-13E. Promoters51.2 Outlook and Valuation: Dena Bank, with a strong CASA ratio of 35.7%, is MF/Banks/Indian FIs 13.0 better placed than its peers to protect its NIMs in a rising interest rate environment. After the proposed capital infusion, the Bank's Tier-I ratio willFII/NRIs/OCBs16.0 improve to 9.1% by end-FY2011E from 8.2% in FY2010, and will enable it to Indian Public 19.8 maintain its CAR well above the 12% level till FY2012E. We estimate Advances to grow at a 17% CAGR over FY2009-12E, driving an EarningsAbs (%) 3m1yr 3yr CAGR of 16% over the period. At the CMP, the stock is trading at 3.8x FY2012E EPS of Rs21.9 and 0.7x FY2012E Adjusted Book Value of Rs120.6.Sensex6.6 58.0 25.0 We have assigned a Target FY2012E P/ABV multiple of 0.8x to Dena Bank, Dena Bank 62.5 122.7 120.3 (equal to its 5-year median P/ABV multiple) to arrive at a Target Price of Rs98, translating into an upside of 18.4%. Hence, we maintain a Buy on the stock.Key FinancialsY/E March (Rs cr) FY2009 FY2010E FY2011E FY2012ENII 1,064 1,1001,295 1,481% chg19.23.317.714.4Net Profit 423511 556 629% chg17.5 21.0 8.813.1NIM (%) 2.82.4 2.4 2.3 Vaibhav AgrawalEPS (Rs) 14.7 17.819.421.9 Tel: 022 4040 3800 Ext: 333 E-mail: firstname.lastname@example.orgP/E (x) 5.64.7 4.3 3.8P/ABV (x) 1.31.0 0.8 0.7 Amit RaneRoA (%) 1.01.0 0.9 0.9 Tel: 022 4040 3800 Ext: 326RoE (%)21.3 220.127.116.11 E-mail: email@example.comSource: Company, Angel Research1 Please refer to important disclosures at the end of this reportSebi Registration No: INB 010996539
2. Dena Bank I 4QFY2010 Result Update Exhibit 1: 4QFY2010 Performance Y/E March (Rs cr)4QFY10 3QFY10 % chg (qoq) 4QFY09% chg (yoy) FY10FY09% chg Interest Earned1,0631,0164.789618.7 4,010 3,44716.3 Interest Expenses7377330.665712.2 2,910 2,38322.1 Net Interest Income326283 15.223936.5 1,100 1,064 3.3 Non-Interest Income175133 31.314024.9 589 43036.9 Total Income 501416 20.437932.2 1,689 1,49513.0 Operating Expenses 2212181.119115.5 848 76810.4 Pre-Prov Profit280198 41.718849.2 841 72615.7 Provisions & Cont.82 29 181.85160.5 154 185(16.8) PBT198168 17.413644.9 687 54126.8 Prov. for Taxes 61 34 78.8 25 140.2 176 11947.8 PAT1371351.911123.3 511 42321.0 EPS (Rs)4.84.7 1.9 3.9 23.317.814.721.0 Cost to Income (%)44.1 52.550.550.251.4 Effective Tax Rate (%)30.7 20.1 18.5 25.621.9 Net NPA (%)18.104.22.168 1.21.1Source: Company, Angel Research Strong Advances and Deposits GrowthDuring 4QFY2010, the business growth stood at 20.7% yoy, driven by advances growth of 22.8% yoy to Rs35,462cr, and deposits growth of 19.3% yoy to Rs51,344cr. Sequential growth in advances (at 14.7%) exceeded deposit growth by 7.4%, resulting in a CD ratio of 69.1% (from 64.6% in 3QFY2010). The advances growth was driven by strong growth in Retail (21.6% yoy), SME (18.3% yoy) and agriculture (25.3% yoy).Exhibit 2: Rising Trend in Quarterly Advances and Deposits60,00050,000 (Rs cr)40,00030,00020,00010,000 -Q4FY08 Q1FY09Q2FY09Q3FY09 Q4FY09 Q1FY10Q2FY10 Q3FY104QFY10 Advances DepositsSource: Company, Angel Research NIM improvesThe reported NIM of the bank improved to 2.8% in 4QFY2010, from 2.5% in 3QFY2010 and 2.4% in 4QFY2009. The NIM expansion was aided by an improvement in the CD ratio, re-pricing of high-cost deposits and a sequentially stable CASA of 35.7%. CASA deposits increased by 23.0% yoy to Rs18,320cr at the end of 4QFY2010. April 28, 20102
3. Dena Bank I 4QFY2010 Result Update Strong Growth in Non-Interest Income driven by Recoveries Non-interest income increased by 24.8% yoy to Rs175cr, driven by a strong tractionin recoveries in written-off accounts, which stood at Rs70cr (against Rs28cr in4QFY2010 and Rs22cr in 3QFY2010). The management expects to recover~Rs120cr p.a. for the next two years. The core fee income increased by 7.1% toRs97cr during 4QFY2010, and recorded a 25.0% growth in FY2010. Exhibit 3: Non-Interest IncomePeriod (Rs cr) 4QFY10 3QFY10 % qoq 4QFY09 % yoyFee based Income 97 83 16.791 7.1Income from Recoveries 70 22 219.1 28155.3Profit on Sale of Invest. 8 28 (72.3)22(64.7)Total Non-Int. income 175133 31.5 140 2489Source: Company, Angel ResearchAsset-quality Stable The absolute Gross NPAs of the bank increased 9.6% sequentially to Rs642cr in4QFY2010. The Gross NPA and Net NPA ratios improved to 1.8% (1.9% in3QFY2010) and 1.2% (1.2% in 3QFY2010), respectively. The NPA provisioncoverage ratio stood at 78.0% after adjusting for technical write-offs. The bankscumulative restructuring stood at Rs1,330cr (Rs1,459cr in 3QFY2010), and formed3.8% of the advances and 51% of the Networth. There was a slippage of Rs110crduring FY2010 from the restructured accounts, taking the slippages from therestructured accounts to 8% for FY2010.Exhibit 4: Trend in Asset Quality 700906008050070(%)40060(Rs cr)300502004010030020Q4FY08Q1FY09 Q2FY09Q3FY09 Q4FY09Q1FY10Q2FY10 Q3FY104QFY10 Gross NPAsNet NPAsCoverage Ratio (%) Source: Company, Angel Research Details of Investment Book Out of the total investment portfolio of Rs15,760cr, 17% is in AFS and the rest inHTM. The modified duration of AFS stood at 4.7 years and that of HTM was 5.2years exposing the portfolio to rising interest rate risk. April 28, 2010 3
4. Dena Bank I 4QFY2010 Result UpdateImproved Productivity The total operating expenses increased by 15.5% yoy to Rs221cr, driven by a 10.1%growth in employee costs and a 23.9% growth in other operating expenses. Due tothe strong growth in operating income, the cost-to-income ratio of the bankimproved to 44.1% in 4QFY2010 (52.5% in 3QFY2010 and 50.5% in 4QFY2009).The total branch network increased by 39 to 1,223 in FY2010; the bank plans toopen 80 branches by June 2010 and 400 branches in the next 3 years. Capital Infusion expected in 1QFY2011E The banks CAR stood at 12.7%, with Tier-I capital of 8.2% (forming 65% of the totalCAR). The government is expected to infuse capital of Rs600cr in the bank, Rs300creach in the form of Equity and Preference Capital; however, the pricing is not clearyet. The management also expects to receive Rs700cr from the Government in theform of Preference Capital over FY2012-13E. The cost of this capital is expected tobe linked to the repo rate, as per the indications of the management. Accordingly,we have assumed the cost of preference capital to be 6.5%. After the proposedcapital infusion, the Bank's Tier-I ratio will improve to 9.1% by end-FY2011E from8.2% in FY2010, and will enable it to grow its Advances in line with our expectationsof a 16-17% growth for mid-size PSU banks over the next two years. Outlook and Valuation Dena Bank, with a strong CASA ratio of 35.7%, is better placed than its peers toprotect its NIMs in a rising interest rate environment. After the proposed capitalinfusion, the Bank's Tier-I ratio will improve to 9.1% by end-FY2011E from 8.2% inFY2010, and will enable it to maintain its CAR well above the 12% level till FY2012E.We estimate Advances to grow at a 17% CAGR over FY2009-12E, driving anEarnings CAGR of 16% over the period. At the CMP, the stock is trading at 3.8xFY2012E EPS of Rs21.9 and 0.7x FY2012E Adjusted Book Value of Rs120.6. Wehave assigned a Target FY2012E P/ABV multiple of 0.8x to Dena Bank, (equal to its5-year median P/ABV multiple) to arrive at a Target Price of Rs98, translating into anupside of 18.4%. Hence, we maintain a Buy on the stock. Exhibit 5: P/ABV Band Dena Bank 180160140120100 (Rs) 80 60 40 200Mar-02 Jul-02Dec-02 Apr-03Aug-03 Dec-03Apr-04 Aug-04Dec-04 Apr-05Aug-05 Dec-05Apr-06 Aug-06Dec-06 Apr-07Aug-07 Dec-07Apr-08 Aug-08Dec-08 Apr-09Aug-09 Dec-09Apr-10 Price 0.4x0.7x 1x 1.3x1.6x Source: Company, Angel Research April 28, 20104
6. Dena Bank I 4QFY2010 Result Update Research Team Tel: 022-4040 3800E-mail: firstname.lastname@example.org Website: www.angeltrade.com DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within.Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, and are for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly.Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.Neither Angel Securities Limited nor its directors, employees and affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).Disclosure of Interest StatementDena Bank1.Analyst ownership of the stock No2.Angel and its Group companies ownership of the stock No3.Angel and its Group companies Directors ownership of the stockNo4.Broking relationship with company coveredNoNote: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies. Address: Acme Plaza, A Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800Angel Broking Ltd: BSE Sebi Reg...