Dena Bank: Recommendation Review

We had recommended Dena Bank to our readers in DSIJ Vol. 27, Issue No. 5 (dated February 13-26, 2012), when it was trading at Rs 80.50. We had recommended the scrip as it was available at a fair valuation, coupled with the expectations of a reversal in the interest rate cycle, an improvement in asset quality and the fact that the bank will receive capital from the government (LIC), which will further increase its capital adequacy ratio.

After our recommendation, the scrip went up. Through our SMS service, we had recommended that investors book profit in it at Rs 94.50. The stock is now trading at Rs 90.10. In view of the volatile market conditions, we would advise investors to book profits now in case they have not already done so.

In the December quarter of FY12, the bank’s Net Non-Performing Assets (NPAs) contracted by 16 basis points to 1.1 per cent on a YoY basis. Further, the Net Interest Margin (NIM) also increased by six basis points to 3.30 per cent on a YoY basis. Dena Bank has raised around Rs 151 crore by issuing preference shares to the LIC.

For the month of February 2012, WPI inflation increased by 40 basis points to 6.95 per cent, while the CPI increased by 118 basis points to 8.83 per cent. With this, there is a lower probability that the RBI will cut the rates in its next policy meet. We believe that one should watch out for Q4 for taking any further positions in the counter.