Investment Rationale

Transcription

1 May 24 th, 21 Dena Bank Ltd. Banking with trust CMP Rs. 85 Target Rs. 119 Initiating Coverage- Buy Company Profile Key Share Data Face Value (Rs.) 1 Equity Capital (Rs. Mn.) Market. Capitalization (Rs. Mn.) wk High / Low (Rs.) 93. / 37. Average Yearly Volume BSE code NSE code Reuters code Bloomberg code DENABANK DENA.BO DBNK IN Dena Bank is a public sector bank. It has presence mainly in western part of India i.e. Maharashtra and Gujarat. The bank has good presence in rural areas which helps bank to tap the low cost deposits. The bank has 1223 branches and 396 ATMs at present. As on 31 st March 21 the bank had Total business of Rs Mn. Shareholding Pattern 31 st March 21 Others, 19.76% FI, 13.78% FII, 15.27% Govt., 51.19% Financials (Rs. Mn.) FY9 FY1 FY11E FY12E Net Int.inc NIMs (%) 2.83% 2.37% 2.49% 2.62% Oprt Profit PAT PAT Gr % 17.76% 2.97% 6.84% 52.99% EPS (Rs.) BVPS Key Financial Ratios FY9 FY1 FY11E FY12E P/E P/ABV Cost to Income 51.4% 5.2% 47.1% 4.3% RoA%.97%.96%.86% 1.1% RoE% 21.29% 21.43% 19.22% 24.12% CD Ratio 67.8% 69.7% 69.7% 69.7% Spread % 3.% 2.56% 2.65% 2.71% Pro.Coverage% NNPA% 1.7% 1.2%.96%.86% CASA 34.78% 35.68% 37.% 38.% 1 year Performance comparison Dena Bank v/s BSE Dena Bank BSEBANKEX Analyst: Amandeep Goraya Tel No.: , Mobile aman.goraya@skpmoneywise.com Investment Rationale Customer focused services Dena Bank is imparting training to its employees to bring efficiency and to make the credit disbursement process faster. Bank is recruiting fresh talent from specialized fields to improve its talent base. Focus on CASA deposits Dena Bank has transformed all its 1% branches under CBS. This will bring efficiency in process. Bank has centralized its back office operation, this has lead to more staff available for business development. Bank has plans to open new branches in semi-urban areas to tap the CASA accounts. Asset quality to improve Bank has set up recovery teams and specialized monitoring system to take care of the asset quality. This has started showing good results as recoveries have increased. Expansion to increase foot print Bank has plans to open 4 new branches in next 3 years. This would increase the presence of the bank and these new branches will mainly be opened in semi-urban areas which are CASA rich areas. The bank plans to open 25 new ATMS by March 211. Fee based income to head towards north Bank is leveraging its relationship with its current customer base to increase the non fund based business to increase the fee based income. Valuation Bank is making more tie ups with state governments for franking of documents and other business. At present Dena Bank is trading at 1.16x Adj. BV of FY1. Our target price of Rs.119 is 1.28x and 1x to Adj. BV per share of FY11& FY12 respectively. We hereby initiate coverage on Dena Bank and recommend buy rating with a target price of Rs.119/- (4% upside) in 15 months. SKP Securities Ltd 1 of 11

2 Company profile The family of Devkaran Nanjee founded Dena Bank on May 26, 1938 with the name Devkaran Nanjee Banking Company Ltd. In December 1939, it became a public limited company and the name was changed to Dena Bank Ltd. In the year 1969, the Dena Bank was nationalized along with 13 other Banks in India. Bank has presence mainly in western part of India i.e. Maharashtra and Gujarat. The bank has good presence in rural areas which help bank to tap the low cost deposits. Bank has 1223 branches at present and bank has plans to open new 4 branches in next 3 years. The bank has 8 new branch licenses pending at present. 6% of its branches are in rural area. These areas are CASA rich areas, which gives Dena Bank upper hand over other banks % Branch network % 18.7% 18.75% Rural Semi urban Urban Metro Source: Annual report FY28-9 Bank has transformed all its branches into CBS branches. This will add to the efficiency of the bank by making banking processes more easy and convenient. At present bank has 396 ATMs and bank plans to open 25 new ATMs by March 211. Investment Arguments Customer focused services: 1. Efficiency in working through training: Dena Bank is imparting specialized credit training to its credit officers so that the processes of efficient appraisal, quick disposal and better monitoring of debtors can be implemented. Bank is trying to build up specializes skills in Agri and MSME financing as the focus of the bank would be on these segment in lending and this would make the process more efficient and speedy in disbursement. This process of specialized training is expected to bring in efficiency in work and convenience for customer by speedy lending leading to better business growth. SKP Securities Ltd Page 2 of 11

3 2. Specialized staff: Bank is recruiting fresh talent in specialized areas. In FY21 bank recruited 13 officers along with 164 clerks. Bank is imparting Customer centric grooming to its front line staff. This is expected to bring in change in the attitude of the staff towards customers helping bank to maintain and develop relationship with existing and new customers. This is expected to bring in a transformation in working of the bank to compete with its private counter parts. Focus on CASA deposits: 1. 1% CBS based working: CBS helps bank to make its process easier which also makes it convenient for clients also as they get more facilities. Bank is providing internet banking service to the clients. Bank has implemented many initiatives for Business Process Reengineering aimed both at optimal utilization of man-power and reducing operational cost. Massive training is imparted to the staff across the organization regarding the CBS implementation to make the optimum use of the CBS technology. 2. Targeted CASA rich area: Bank has plans to open new branches focusing mainly in semi-urban areas. As per the industry trend banks are targeting rural areas to increase their CASA base and since Dena Bank already has presence in rural areas it would give it an added advantage to have knowledge of these areas. 3. New retail products: Bank has been focusing on retail loans in the form of study loans, auto loans, housing loans etc. this helps to bring in new savings accounts. Bank has launched products specially for this purpose like Dena Nivas, Dena Auto, Dena Vidyalaxmi etc. to attract retail customers. 4. Centralized Back office: All the back office functions have been centralized, this has helped frontline staff to concentrate on front-desk office work and more work force is available for other functions like business development. 4.% 35.% 3.% 25.% 2.% 15.% 1.% 5.%.% 34.78% 35.68% 37.% 38.% 22.37% 24.44% 23.24% 12.39% 29 21E 211 E 212 E CASA ratio CASA grow th Source: Company & SKP Research SKP Securities Ltd Page 3 of 11

4 We expect that all the above 4 factors will help the bank in achieving CASA ratio of 38% by FY212 from the CASA ratio of 35.68% in FY21. Asset Quality to improve: 1. Recovery teams: Specialized recovery teams are formed to recover dues with help of SARFAESI Act and OTS or compromise settlements. 2. Monitoring systems: Bank has set up monitoring systems that monitor the loans on weekly bases. This has started showing effects as there have been good recoveries and the bank expects to get good recoveries in future also. 3. Recovery cells: Bank has established NPA recovery cells at all its regional offices. The recovery committee meets regularly to review the progress made in the NPAs and for identify and pursue the potential accounts for compromise settlements. NPAs 2.5% 2.% 1.5% 1.%.5%.% 2.13% 78.61% 79.96% 79.21% 1.8% 48.27% 1.5% 1.22% 1.38% 1.1%.97%.87% 29 21E 211 E 212 E 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% PCR GNPA % NNPA % PCR Source: Company & SKP Research We expect that the bank would be able to control its asset quality by 212 while also complying with the new RBI guidelines of maintaining Provision Coverage ratio of 7% minimum. Expansion to increase footprint: At present bank have 1223 branches and 396 ATMs. Bank targets to open 4 new branches in next 3 years. The main focus would be to tap more semi-rural areas; this will bring in more CASA helping to improve margins. SKP Securities Ltd Page 4 of 11

5 E 211 E 212 E 213E Branches ATMs Source: Company & SKP Research At present the bank has 396 ATMs and plans to add 25 new ATMs by March 211. Fee based income to head towards north: To increase the fee income, Dena Bank is focusing on to leverage its relationship with its existing customer base. Bank plans to tap non-fund based business from its existing as well as new customers. Bank is making more tie ups with state governments for franking of documents and other business. Focus is more on tax collections. More efforts are being diverted towards sale of third party products like insurance and Mutual funds. Source: Company & SKP Securities. SKP Securities Ltd Page 5 of 11

6 Financial Performance Profitability Rs. Mn % 53.% % 7.5% 29 21E 211 E 212 E 8.% 6.% 4.% 2.%.% PAT PAT grow th Source: Company & SKP Research Dena Bank a consistent performer saw a subdued profitability due to asset deterioration caused by recent global meltdown. However we expect it to stabilize in FY11 and subsequently show growth of 53% in FY12 over FY11. Efficiency 3% 25% 2% 15% 1% 5% % 1.1% 1.% 1.%.9% 24% 21% 21% 19% 29 21E 211 E 212 E 1.2% 1.%.8%.6%.4%.2%.% ROE RoAA Source: Company & SKP Research Dena Bank has shown good performance which can be seen from the efficient use of assets in the form of RoAA which we expect to improve from 1% for FY29 to 1.1% in FY212. On the other hand the bank has been growing returns for its stakeholders in the form of RoE and we expect this to move from 21% in FY29 to 24% in FY212. Cost efficiency 6.% 5.% 4.% 3.% 2.% 1.%.% 51.4% 5.2% 47.1% 4.3% 29 21E 211 E 212 E Cost to Income. Source: Company & SKP Research Dena Bank has been working on cost efficiency, this is achieved by converting all branches as CBS branches, training imparted to the staff to increase their productivity and by setting up recovery teams to reduce loan loss cost. We expect the cost to income ratio to come down from 51.4% in FY29 to 4.3% in FY212. SKP Securities Ltd Page 6 of 11

7 Valuations & Outlook Bank Nifty Closing ` P/BV 2 1 May-1 Jan-2 Sep-2 May-3 Jan-4 Sep-4 May-5 Jan-6 Sep-6 May-7 Jan-8 Sep-8 May-9 Jan-1 Close P/BV Source: SKP Research & Capitaline Bank Nifty is approximately close to P/BV of 2.6. Bank Nifty Closing May-1 May-2 May-3 May-4 May-5 May-6 May-7 May-8 May-9 May-1 P/E 5 Closing P/E Source: SKP Research & Capitaline Bank Nifty is approximately close to P/E of 17. SKP Securities Ltd Page 7 of 11

8 x 1x.5x 4 2 Date Sep- 2 M ar- 3 Sep- 3 Feb- 4 Aug- 4 Feb- 5 Jul- 5 Jan- 6 Jul- 6 Jan- 7 Jun- 7 Dec- 7 Jun- 8 Dec- 8 Jun- 9 Dec- 9 Source: SKP Research & Capitaline. The above chart shows the historical performance of Dena Bank on the basis of its forward Price to book value x 15 8x 6x 1 4x 5 2x Date Aug-2 Jan-3 May-3 Oct-3 Feb-4 Jul-4 Nov-4 Apr-5 Aug-5 Jan-6 Jun-6 Oct-6 Mar-7 Aug-7 Dec-7 May-8 Sep-8 Feb-9 Jul-9 Dec-9 Apr-1 Source: SKP Research & Capitaline. The above chart shows the historical performance of Dena Bank on the basis of its forward Price to EPS. At present Dena Bank is trading at 1.16x Adj. BV of FY1. Our target price of Rs.119 is 1.28x and 1x to Adj. BV per share of FY11& FY12 respectively. We hereby initiate coverage on Dena Bank and recommend buy rating with a target price of Rs.119/- (4% upside) in 15 months. Key Concerns The base rate regulation may put pressure on the loans given at sub PLR rates. If substitute mode of financing comes up, so the bank might see corporate opting for these lower cost financing options. The base rate regulation will also dampen the margins since yield on loans of more than 12.5% will decrease. SKP Securities Ltd Page 8 of 11

9 Financial Statements & Ratios Income Statement Financial Year (Rs.Mn.) E 212 E Interest Income Interest Expenses Net Interest Income Fee based Income Treasury Income Miscellaneous Income Other Income Operating Income Staff Cost Other Operating Expenses Operating Expenses Operating Profit Provisions Profit before Taxes Taxes Profit after Taxes Balance Sheet Financial Year (Rs. Mn.) 29 21E 211 E 212 E LIABILITIES Capital Reserves & Surplus Deposits Borrowings Other Liabitlies Total ASSETS Cash & Balances with RBI Balances with bank Advances Investments Fixed Assets Other assets Total Assets SKP Securities Ltd Page 9 of 11

10 Ratios 29 21E 211 E 212 E Spread analysis (%) Yield on advances 9.89% 9.35% 1.25% 1.25% Yield on investments 7.28% 6.82% 7.9% 7.9% Yield on interest-earning assets 9.16% 8.63% 9.31% 9.25% Cost of deposits 5.86% 5.85% 5.72% 5.67% Cost of funds 6.15% 6.6% 6.66% 6.54% Spread 3.% 2.56% 2.65% 2.71% Profitability ratios (%) RoAA.97%.96%.86% 1.1% ROE 21.29% 21.43% 19.22% 24.12% NIM Cost to Income 51.4% 5.22% 47.6% 4.26% Asset Quality (%) Gross NPAs% 2.13% 1.8% 1.5% 1.39% Net NPAs% 1.1% 1.22%.98%.87% Provision Coverage Ratio 48.27% 78.61% 79.96% 79.21% Net NPA as % to Networth 14.44% 16.43% 13.27% 11.39% Delinquency Rate 2.34% 1.78% 1.83% 1.83% Burden Efficiency Ratio.47%.3%.28%.17% Valuation ratios (x) EPS BV per share Adj. BV P/E P/Adj.BV Business Ratio Credit Deposit ratio 67.8% 69.7% 69.7% 69.7% Investment Deposit ratio 28.97% 3.57% 3.57% 3.57% SLR to Investment ratio 8.65% 84.98% 84.77% 84.58% CASA ratio 34.78% 35.68% 37.% 38.% Total Business Growth rate 26.26% 2.68% 2.% 2.% Cash Flow Statement 29 21E 211E 212E PAT Net Cash from Operating Activities Net Cash used in Investing Activities Net cash generated from Financing Activities Net Increase in cash & cash equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents SKP Securities Ltd Page 1 of 11

11 The above analysis and data are based on last available prices and not official closing rates. and ISI Securities. SKP Research is also available on Bloomberg, Thomson First Call & Investext Myiris, Moneycontrol, Tickerplant DISCLAIMER: This document has been issued by SKP Securities Ltd (SKP), a stock broker registered with and regulated by Securities & Exchange Board of India, for the information of its clients/potential clients and business associates/affiliates only and is for private circulation only, disseminated and available electronically and in printed form. Additional information on recommended securities may be made available on request. This document is supplied to you solely for your information and no matter contained herein may be reproduced, reprinted, sold, copied in whole or in part, redistributed or passed on, directly or indirectly, to any other person for any purpose, in India or into any other country without prior written consent of SKP. The distribution of this document in other jurisdictions may be strictly restricted and/ or prohibited by law, and persons into whose possession this document comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition. If you are dissatisfied with the contents of this complimentary document or with the terms of this Disclaimer, your sole and exclusive remedy is to stop using the document and SKP shall not be responsible and/ or liable in any manner. Neither this document nor the information or any opinion expressed therein should be construed as an investment advice or offer to anybody to acquire, subscribe, purchase, sell, dispose of, retain any securities or derivatives related to such securities or an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or as an official endorsement of any investment. Any recommendation or view or opinion expressed on investments in this document is not intended to constitute investment advice and should not be intended or treated as a substitute for necessary review or validation or any professional advice. The views expressed in this document are those of the analyst which are subject to change and do not represent to be an authority on the subject. SKP may or may not subscribe to any and/ or all the views expressed herein. It is the endeavor of SKP to ensure that the analyst(s) use current, reliable, comprehensive information and obtain such information from sources, which the analyst(s) believes to be reliable. However, such information may not have been independently verified by SKP or the analyst(s). The information, opinions and views contained within this document are based upon publicly available information, considered reliable at the time of publication, which are subject to change from time to time without any prior notice. The Document may be updated anytime without any prior notice to anybody. SKP makes no guarantee, representation or warranty, express or implied; and accepts no responsibility or liability as to the accuracy or completeness or correctness of the information in this Report. SKP, its Directors, affiliates and employees do not accept any liability whatsoever, direct or indirect, that may arise from the use of the information or recommendations herein. Please note that past performance is not necessarily a guide to evaluate future performance. SKP or its affiliates, may, from time to time render advisory and other services to companies being referred to in this document and receive compensation for the same. SKP and/or its affiliates, directors and employees may trade for their own account or may also perform or seek to perform investment banking or underwriting services for or relating to those companies and may also be represented in the supervisory board or on any other committee of those companies or may sell or buy any securities or make any investment, which may be contrary to or inconsistent with this document. This document should be read and relied upon at the sole discretion and risk of the reader. The value of any investment made at your discretion based on this document or income there from may be affected by changes in economic, financial and/ or political factors and may go down as well as up and you may not get back the full or the expected amount invested. Some securities and/ or investments involve substantial risk and are not suitable for all investors. Neither SKP nor its affiliates or their directors, employees, agents or representatives/associates, shall be responsible or liable in any manner, directly or indirectly, for information, views or opinions expressed in this document or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the document or inability to use or access our service or this document or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits or any loss or damage that may arise from or in connection with the use of or reliance on this document or inability to use or access our service or this document. SKP Securities Ltd Contacts Research Sales Mumbai Kolkata Mumbai Kolkata Phone Fax researchmum@skpmoneywise.com research@skpmoneywise.com Skp.sec@bloomberg.com Entities Member: NSE BSE NSDL CDSL NCDEX* MCX* MCX-SX FPSB *Group INB/INF: , BSE INB: , CDSL IN-DP-CDSL-132-2, DPID: 218, NSDL IN-DP-NSDL: , DP ID: IN32646, ARN: 6, NCDEX: 715, MCX: 3175, MCX-SX: INE SKP Securities Ltd Page 11 of 11