Dena Bank Has More Positives than Negatives

Dena Bank Faced the Challenges Well

Dena Bank Faced the Challenges Well
Dena Bank Faced the Challenges Well | Source
Dena Bank  - share  price  movement
Dena Bank - share price movement | Source

Focus On Small Loans

Good Results

Dena Bank has performed well for the financial year 2011-12 as its results indicate. Revenue for the quarter ended 31.03.12 increased to Rs.1955.89 crore from Rs.1676.24 crore in the previous quarter. Revenue for the whole year 2011-12 was at Rs.6794.13 crore. Net profit increased to Rs.254.79 crore from Rs.186.68 crore. Net profit for the whole year was at Rs.803.14 crore. EPS for the year stands at Rs.24.08. Net profit margin for the year is at 11.82%. The shares of Dena Bank are traded in the stock market at Rs.88.10 now (BSE 01.06.12). The highest and the lowest prices recorded by the shares of the company in the last one year are Rs.103.60 and Rs.47.55 respectively.

Focus On Small Loans

Dena Bank is focusing on small loans and diversifying its loans portfolio. The previous Managing Director of the Bank D L Rawal said that there was a slump in the real estate market. But in South India, real estate sector is doing well. But Dena Bank is not in a position to take advantage of it as it has very few branches in South India. According to the previous Managing Director, there had been a healthy growth in CASA (current accounts and savings account) deposits. Dena Bank recorded a healthy growth of 28% in its savings bank deposits in Q3. But during the year 2011-12, its low cost deposits slipped from 35.17% to 33.3% but still the figure is quite healthy. Dena Bank has its headquarters in Mumbai.

Dena Bank Faced the Challenges Well

For powering its growth, Dena Bank is adopting the strategy of concentrating on small & medium enterprises, home loans in non metros and housing loans in rural areas which fall under the financial inclusion category, which the government and the RBI are particular about. As the manufacturing sector is witnessing slowdown, big loans are facing a slackening in demand. Cost of funds is going up whereas margins are coming down. Under this difficult circumstance, the bank has done well to maintain a reasonable growth rate.

Risk Aversion

During the third quarter, Dena Bank grew because of cement, infrastructure and steel sectors. There was a peak seasonal demand from sugar industry, rice mills and agriculture. Dena Bank is not getting many fresh proposals. Almost all the banks have reached their limit in power sector advances. Dena Bank has done well to avoid advancing too much amount to any one sector, thereby avoiding unwanted risks. Dena Bank is favourable to lending to middle classes particularly in home loans.

Fresh Capital

Dena Bank’s shares have underperformed the banking index. Government of India had announced that it would infuse fresh capital amounting to Rs.539 crore into Dena Bank. Dena Bank will find it useful to increase its Tier-I capital adequacy ratio from 7.2% to the mandatory 8%. In the past, Dena Bank saw its loan assets growing faster than its equity capital. Future growth potential was hampered because of this. But Dena Bank has been maintaining its net interest margin at 3.12%. This is much above most of the other banks operating in India. Even in a rising interest rate regime, Dena Bank can keep its margins and profit under control because of its high CASA base. Its assets quality is also high with gross NPA at less than 2%. The only deficiency for the bank was the lopsided debt equity ratio. But the government’s infusion of capital will correct this.

One Time Bonanza

Net interest income boosted Dena Bank’s Q1 profit by 21%. Under its festive offer last October, Dena Bank cut its auto and home loan interest rates further in order to boost its advances to the middle class segment. LIC had decided last year to acquire 5% stake in Dena Bank for Rs.125 crore. For the current year, Dena Bank was benefitted through winning a legal matter. This helped the bank to post a 62% increase in its net profit to Rs.254.79 crore for the Q4. The bank received a favourable judgement in a tax matter amounting to Rs.137 crore. Nupur Mitra is the new CMD of the bank.

Low NPA Level

For the year 2012-13, Dena Bank is targeting at 20% growth in advances and 22% growth in deposits. Dena Bank’s total capital adequacy was at 11.51% as on 31.03.12. Core Tier-I capital adequacy was at 8.86%. During the current fiscal year, Dena Bank plans to raise Rs.1200 crore Tier-II capital which will take the total capital adequacy ratio to 12%. Dena Bank’s net NPA stood at 1.01% which is quite healthy. Dena Bank has declared a dividend of 30%. For the year 2011-12, the bank’s total income increased to Rs.7376.30 crore from Rs.5567.30 crore.

Good Medium Term Investment

There is no immediate threat to Dena Bank. But its profitability can be affected through concentration of its advances in power sector and infrastructure as these sectors are not doing well right now. As the bank moves to system based NPA recognition, the quality of its assets may be diluted. The bank’s dependence on bulk deposits may also cause some difficulty to it in case of sudden withdrawals. Notwithstanding all these, one can buy the shares of Dena Bank at the current price for medium and long term holding for decent gains.

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