Dena Bank Posts Healthy June Quarter 2012 Results

Dena Bank posted a good set of June quarter numbers on July 27, 2012. However, due to the volatile market conditions coupled with the bank’s margin getting squeezed on a sequential basis, the stock moved southwards, closing lower by almost 4 per cent on that day. The net interest income (NII) of the bank increased by 37 per cent to Rs 446 crore while the bank posted robust net profit growth of 42 per cent to Rs 238 crore. The following are the bank’s other key parameters which one should look upon:

One of the reasons why the stock plunged on the result day was because of its contraction in the net interest margin (NIM). On a sequential basis, the NIM of the bank decreased by 15 basis points to 3.06 per cent. However, the same improved by 16 basis points on a YoY basis. In the press meet held by the bank on the same day, the management further guided they would maintain the NIM above 3 per cent.

The asset quality of the bank strengthened as the gross and the net NPA of the bank contracted. Its gross NPA decreased by 6 basis points to 1.8 per cent while the net NPA decreased by 7 basis points to 1.01 per cent. In this uncertain environment when most of the banks, especially those in the public sector, are facing issues on the asset quality front, Dena Bank showed a improvement, which is commendable. Further, the provision coverage ratio (PCR) stood at 75.62 per cent which should be considered as good enough. As 30th June 2012 the capital adequacy ratio (CAR) stood at 12.35 per cent with Tier 1 CAR standing at 8.33 per cent. When we asked the management about raising capital for meeting the requirements of Basel III, they replied that as of now the bank had no such plans and that there is enough time for the bank to raise funds to eventually meet the norms.  

Dena Bank also posted handsome business growth. As on June 30, 2012, the total deposits increased by 26 per cent to Rs 79,736 crore while the advances increased by 39 per cent to Rs 59,641 crore. The robust growth in the advances was due to high credit lending resulting into growth in the agriculture and MSME segments of around 70 and 31 per cent respectively. The cost to income ratio of the bank also improved significantly. As on June 30, 2012, the ratio stood at 39.26 per cent as against 46.10 per cent in a similar period last year. This further shows that the bank is operating in an efficient manner.

The treasury segment was the best performer this quarter as compared to its other segments. The revenue from the same increased by 28 per cent to Rs 513 crore while the profit from the segment stood at Rs 111 crore as against a loss of Rs 21 crore in the similar quarter last year. One of the reasons could be because the RBI slashed the rates in April, which would have eased the benchmark bond yields resulting into an increase in the price of the bonds, making mark to market benefit for the bank. This could be because the bank witnessed a muted profit growth in its wholesale banking segment and posted de-growth in its retail segment.

The bank opened 16 new branches in the June 2012 quarter, taking the total network to 1,358 branches and 545 ATMs. The management plans to open 100 new branches during FY2012-13. According to Nupur Mitra, chairperson and managing director of the bank, the management is focusing on the core banking activity which will further help the bank to grow. In terms of guidance she added that they expect 18 per cent growth in deposits and 20 per cent in terms of advances in FY2013.

In conclusion, we believe that the bank posted a good set of numbers, barring the fact that it faced headwinds on the margin front.Going ahead, the interest rate in the reverse gear would definitely help the bank. On the valuation front, Dena Bank is available at a price to book value of around 0.67 times which should be considered as fairly valued. We at Dalal Street Investment Journal believe that there could be some pressure on the stock on the back of the RBI meet and hence one could enter the counter in a staggering manner keeping in mind a long-term horizon to garner better returns.