Result Update

July 30, 2012

Rating matrix
Rating Target Target Period Potential Upside : : : : Buy | 104 12 months 20%

Dena Bank (DENBAN)

| 87
WHATS CHANGED
PRICE TARGET....................................................................................................Unchanged
FY13E 2543 1866 942 FY14E 2982 2171 1106

Key Financials
| crore NII PPP PAT FY11 1763 1224 612 FY12 2101 1528 803

EPS (FY13E)........................................................................... Changed from |26.6 to |26.9 EPS (FY14E)........................................................................... Changed from |31.2 to |31.6 RATING...............................................................................................................Unchanged

Valuation summary
FY11 Net Profit (| crore) EPS (Rs) Growth (%) P/E (x) ABV (Rs) Price / Adj Book (x) GNPA (%) NNPA (%) RoNA (%) RoE (%) 611.6 18.3 2.9 4.7 87.3 1.0 1.9 1.2 1.0 21.2 FY12 803.1 22.9 25.1 3.8 106.3 0.8 1.7 1.0 1.0 19.7 FY13E 941.6 26.9 17.2 3.2 130.7 0.7 1.7 0.8 1.0 19.3 FY14E 1105.8 31.6 17.4 2.8 156.7 0.6 1.8 0.8 1.0 19.1

Core performance drives profitability

A strong core performance, healthy asset quality and MTM reversal in the provisions for investments enabled Dena Bank to register strong 42% YoY growth in profits. Fresh restructured advances were to the tune of | 855 crore, which now comprises 7.1% of the loan book. However, the management has indicated that major restructuring has been done. We believe the banks core business will keep up with its sturdy performance. Also, with asset quality expected to be healthy, we have factored in 17% CAGR in profits over FY12-14E. We maintain our BUY recommendation. Business growth robust, slippages ratio decline NII grew strongly by 37% YoY to | 612 crore (I-direct estimate: | 548 crore) on the back of robust advances growth of 39% YoY led by corporate and MSME segments. CASA ratio declined 355 bps QoQ to 30.9% owing to interest rate differential and economic slowdown. The C/I ratio came in lowest in the last few quarters at 39.3%. The rise in C/D ratio and lower slippages QoQ help contain the margin compression to 15 bps sequentially to 3.06% despite a 25 bps rise in CoD. We expect NIMs to be in the range of 2.9-3% in FY13. The asset quality was at acceptable levels with the slippage ratio improving to 1.4% vs. 2.2% witnessed in Q4FY12. PCR stood at 76%. The bank raised | 850 crore of lower Tier II bonds during the quarter, which improved the CAR to 12.4%. What concerns the bank ahead One of the concerns on the stock is the higher restructured portfolio and lower recoveries. According to the management, most of the restructuring has been done with and the future pipeline seems to be lower while recoveries are expected to surge. Further, the bank aims to bring down its power exposure to 10-11% by FY13 from ~15% currently. We have revised our NPA estimates lower while 19% CAGR in credit should not be a concern. Strong operating profit helps sustain valuations The bank has posted excellent return ratios with RoA of 1% and RoE of 20% in the past 15 quarters. Dena Bank is one of our top picks. We maintain our multiple of 0.8x, 0.7x FY13E, 14E ABV, respectively, and our target price of | 104 as the core business continues to drive profitability.
Exhibit 1: Financial Performance
| Crore NII Other Income PPP PAT Q1FY13 612.2 141.7 457.9 238.6 Q1FY13E 547.9 141.6 400.7 207.0 Q1FY12 446.6 124.4 307.7 168.1 Q4FY12 598.4 210.5 475.5 254.8 YoY Gr. (%) 37.1 13.9 48.8 42.0 QoQ Gr. (%) 2.3 -32.7 -3.7 -6.3

Stock data
Market Capitalisation GNPA (Q1FY13) NNPA (Q1FY13) NIM (Q1FY13) 52 week H/L Equity capital Face value DII Holding (%) FII Holding (%) | 2986 crore | 1076 crore | 597 crore 3.06% 104/48 | 350 Crore | 10 11.3 13.3

Price movement
7,000 5,000 3,000 1,000
Sep-11 Nov-11 Mar-12 May-12 Jan-12 Jul-12

120 100 80 60 40 20 0

Dena Bank (R.H.S)

Nifty (L.H.S)

Analysts name
Kajal Gandhi kajal.gandhi@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com Jaymin Trivedi jaymin.trivedi@icicisecurities.com

Source: Company Quarterly Presentation, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Assumption table

Particulars Credit growth (%) Deposit growth (%) CASA ratio (%) NIM calculated (%) Cost to income ratio (%) GNPA (| crore) NNPA (| crore) Slippage ratio (%) Credit cost (%) FY11 26.4 25.1 35.5 3.0 46.7 842 549 2.1 0.7 FY12 26.5 20.2 34.6 2.9 43.0 957 572 1.6 0.7 FY13E 19.8 17.5 33.0 2.9 41.6 1126 545 1.8 0.7 FY14E 18.0 16.8 32.9 2.9 41.5 1423 666 1.9 0.7

Source: Company, ICICIdirect.com Research

Exhibit 3: Credit growth robust at 39% YoY

130000 110000 50 40 30 80105 105972 59641.53 79735.9 56693 77167 67892 90699 20 10 0 FY13E Q3FY12 Q1FY13 FY14E FY12 (%)
(%)

We expect business growth at a CAGR of 18% on the back of growth at a CAGR of 17% in deposits and 19% in advances over FY12-14E

(| crore)

90000 70000 45163 64210 36541 53498 41426 60479 42723 64236 Q2FY12 42871 63253 47928 68339 50000 30000 10000

Advances

Deposits

Q1FY12

Q2FY11

Q3FY11

FY11

Advances growth YoY (RHS)

Deposits growth YoY (RHS)

Source: Company quarterly presentation, ICICIdirect.com Research

Exhibit 4: Margins guided to be maintained above 3%

Margins declined 15 bps QoQ though supported by strong advances growth and lower slippages
16.0 12.0 (%) 8.0 4.0 0.0 FY13E* Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 FY14E* FY12* 4.0 3.5 3.0 2.5 2.0 1.5 1.0

Yield on advances

Cost of deposits

NIM (RHS)

*Calculated

Source: Company quarterly presentation, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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We estimate GNPA ratio at 1.8% and NNPA ratio at 1% by FY14E. The management expects to bring down power exposure further to 10-11% from ~14-15% currently

Exhibit 5: Slippages contract during quarter, slippage ratio now at 1.4%

1600 1400 1200 1000 800 600 400 200 0 3 1423 957 1076 1126

(| Crore)

2 (%)

842

801

826

803

797

830

885

642

598

586

548

572

597

538

516

519

372

365

428

458

491

524

545

666 FY14E
71144 34828 FY14E

0 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q1FY12 Q2FY12 Q3FY12 Q1FY13 FY13E FY11 FY12

GNPA

NNPA

GNPA Ratio (RHS)

Source: Company quarterly presentation, ICICIdirect.com Research

Of the | 855 crore of fresh restructured assets, | 477 crore and | 250 crore belonged to UP SEB and Dakshin Haryana SEB, respectively. The bank made NPV provision to the tune of | 7.3 crore during the quarter. GNPA in absolute terms increased by | 119.6 crore sequentially to | 1076 crore. Slippages in the quarter were lower sequentially at | 192 crore vs. | 244 crore in Q4FY12. Recoveries, upgradation and write-offs were on the lower side at | 49.1 crore, | 21.7 crore and | 1.6 crore, respectively.
Exhibit 6: CASA ratio declines significantly to 30.9%
80000 70000 55093 50000 41467 39073 38860 39602 42482 40000 19026 32612 20927 32571 30000 20000 10000 0 60807 60000 (| Crore) 50503 40 38 36 34 32 30 Q1FY12 Q2FY12 Q3FY12 Q1FY13 Q2FY11 Q3FY11 FY13E FY11 FY12 (%) 29892

22743

21406

22243

22879

23848

26664

Q1FY11

CASA

Term Loans

CASA%(RHS)

Source: Company quarterly presentation, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

20998

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Exhibit 7: Core fee income declines 7.7% YoY though trading income was robust
Other income grew at 14% YoY led by trading income witnessing robust growth. Core fee based income declined 7.7% YoY
Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Q4FY11 0.0 108.7 96.6 112.8 118.4 50.0 100.0 Commission Trading gains 104.1 159.8 10.0 15.3 4.0 12.8 1.4 10.2 0.3 62.1 150.0 200.0 250.0 32.0 5.6 19.3 31.4

Recovery in w/off

Source: Company quarterly presentation, ICICIdirect.com Research

Exhibit 8: Return ratios stay strong due to high operating profits on a consistent basis
In Q1FY13, RoA stood at 1.07% while RoE was at 21.6%. The bank has been consistently maintaining RoE of 20% and RoA of 1% We expect RoE of 19% in FY13E with RoA at 1%
(%) 1.0 1.4 35 30 25 20 15 0.6 FY13E Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 FY14E FY11 FY12 10 (%)

RoA

RoE (RHS)

Source: Company quarterly presentation, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Financial summary
Profit and loss statement
(| Crore) (Year-end March) Interest Earned Interest Expended Net Interest Income Growth (%) Non Interest Income Fees and advisory Treasury Income and sale of Invt. Other income Net Income Employee cost Other operating Exp. Operating Income Provisions PBT Taxes Net Profit Growth (%) EPS (|) FY11 5033.5 3270.2 1763.4 60.3 533.8 142.8 24.0 367.0 2297.2 688.2 385.2 1223.8 325.6 898.2 286.6 611.6 19.6 18.3 FY12 6794.1 4693.1 2101.0 19.1 582.2 159.2 34.7 388.3 2683.2 714.7 440.1 1528.4 562.5 965.9 162.8 803.1 31.3 22.9 FY13E 8068.6 5526.1 2542.5 21.0 653.3 181.5 41.6 430.2 3195.8 814.4 515.8 1865.6 520.5 1345.1 403.5 941.6 17.2 26.9 FY14E 9432.8 6450.5 2982.3 17.3 730.7 210.5 49.9 470.3 3713.0 923.7 618.3 2171.0 591.3 1579.7 473.9 1105.8 17.4 31.6

Key ratios
(Year-end March) Valuation No. of Equity Shares EPS (Rs.) BV (Rs.) ABV (Rs.) P/E P/BV P/adj.BV Yields & Margins (%) Net Interest Margins Yield on assets Avg. cost on funds Yield on average advances Avg. Cost of Deposits Quality and Efficiency Cost to income ratio Credit/Deposit ratio GNPA (%) NNPA (%) ROE (%) ROA (%) 3.0 8.7 5.5 9.5 5.4 46.7 69.8 1.9 1.2 19.5 1.0 2.9 9.4 6.4 10.2 6.4 43.0 73.5 1.7 1.0 19.7 1.0 2.9 9.3 6.3 10.1 6.3 41.6 74.9 1.7 0.8 19.3 1.0 2.9 9.2 6.3 10.0 6.3 41.5 75.6 1.8 0.8 19.1 1.0 FY11 33.3 18.3 103.8 87.3 4.7 0.8 1.0 FY12 35.0 22.9 122.6 106.3 3.8 0.7 0.8 FY13E 35.0 26.9 146.3 130.7 3.2 0.6 0.7 FY14E 35.0 31.6 175.7 156.7 2.8 0.5 0.6

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(| Crore) (Year-end March) Sources of Funds Capital Reserves and Surplus Networth Deposits Borrowings Other Liabilities & Provisions Total Application of Funds Fixed Assets Investments Advances Other Assets Cash with RBI & call money Total 403.7 18768.9 44828.0 1428.9 5408.8 70838.4 406.6 23027.6 56692.5 1709.9 5551.2 87387.9 420.1 26241.7 67892.4 1808.3 5211.2 101573.7 467.5 30162.4 80105.0 1934.6 5490.6 118160.1 333.4 3322.5 3655.9 64209.6 1691.7 1281.2 70838.4 350.1 4127.3 4477.3 77166.8 3880.9 1862.8 87387.9 350.1 4940.6 5290.7 90699.0 3422.2 2161.9 101573.7 350.1 5953.2 6303.3 105972.0 3419.9 2464.9 118160.1 FY11 FY12 FY13E FY14E

Growth ratios
(% growth) (Year-end March) Total assets Advances Deposit Total Income Net interest income Operating expenses Operating profit Net profit Net worth EPS FY11 23.0 26.4 25.1 21.1 60.3 26.6 45.6 19.6 44.6 2.9 FY12 23.4 26.5 20.2 32.5 19.1 7.6 24.9 31.3 24.1 25.1 FY13E 16.2 19.8 17.5 18.2 21.0 15.2 22.1 17.2 19.3 17.2 FY14E 16.3 18.0 16.8 16.5 17.3 15.9 16.4 17.4 20.1 17.4

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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ICICIdirect.com coverage universe

Sector / Company Banking Bank of India (BANIND) Bank of Baroda (BANBAR) Dena Bank (DENBAN) Indian Overseas Bank (INDOVE) IDBI Bank (IDBI) Oriental Bank of Commerce (ORIBAN) Punjab National Bank (PUNBAN) State Bank of India (STABAN) Syndicate Bank (SYNBN) Union Bank of India (UNIBAN) Axis Bank (UTIBAN) City Union Bank (CITUNI) Development Credit Bank (DCB) Federal Bank (FEDBAN) HDFC Bank (HDFBAN) Kotak Mahindra Bank (KOTMAH) South Indian Bank (SOUIN0) Yes Bank (YESBAN) CMP (|) 293 655 90 71 85 214 720 1,963 96 166 1,021 52 40 406 590 530 23 359 TP(|) Rating 370 880 104 94 114 255 866 2,422 111 213 1,210 57 60 472 590 581 28 399 Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Hold Hold Buy Buy M Cap (| Cr) 15,422 23,924 2,986 3,863 8,369 6,252 22,809 124,628 5,486 8,693 41,896 2,072 1,045 6,947 137,100 39,073 2,593 12,248 EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E 46.6 121.4 22.9 13.2 15.9 39.1 124.9 174.5 21.8 32.5 102.9 6.9 2.3 45.4 22.0 14.6 3.5 27.7 57.6 150.6 26.9 16.5 18.0 46.1 150.9 201.9 24.6 35.7 116.2 7.3 2.9 50.2 28.4 18.4 4.1 31.3 69.0 177.7 31.6 19.7 19.9 54.6 173.2 231.6 28.8 40.3 135.7 9.0 3.8 60.0 36.0 22.9 5.2 40.4 6.3 5.4 3.9 5.4 5.3 5.5 5.8 11.2 4.4 5.1 9.9 7.5 17.3 8.9 26.8 39.6 6.5 13.0 5.1 4.3 3.3 4.3 4.7 4.7 4.8 9.7 3.9 4.6 8.8 7.1 13.8 8.1 20.8 31.4 5.6 11.5 4.3 3.7 2.8 3.6 4.3 3.9 4.2 8.5 3.3 4.1 7.5 5.7 10.6 6.8 16.4 25.4 4.4 8.9 1.1 1.1 0.8 0.6 0.9 0.7 1.1 1.9 0.8 0.9 1.9 1.7 1.3 1.3 4.7 5.5 1.3 2.7 0.9 0.9 0.7 0.6 0.8 0.7 1.0 1.6 0.7 0.9 1.6 1.3 1.2 1.2 4.1 4.8 1.1 1.9 0.9 0.8 0.6 0.5 0.7 0.6 0.8 1.4 0.7 0.8 1.3 1.1 1.0 1.1 3.5 4.1 0.9 1.6 0.7 1.2 1.0 0.5 0.7 0.7 1.2 0.9 0.8 0.7 1.6 1.7 0.7 1.4 1.7 1.9 1.1 1.5 0.8 1.3 1.0 0.5 0.7 0.7 1.1 1.0 0.8 0.7 1.6 1.7 0.7 1.3 1.8 1.9 1.2 1.6 0.8 1.3 1.0 0.5 0.7 0.7 1.1 1.0 0.8 0.7 1.6 1.7 0.8 1.3 1.9 1.9 1.2 1.5 14.0 20.6 19.7 11.1 13.4 9.9 19.8 15.7 16.3 14.9 20.3 24.7 8.1 14.4 18.7 14.7 21.6 23.1 14.9 20.6 19.3 11.7 12.5 10.8 17.5 15.2 16.2 14.3 19.3 22.2 8.3 14.6 20.7 15.9 21.6 20.5 16.2 20.3 19.1 12.8 12.5 11.8 16.9 15.0 16.9 14.5 18.7 20.5 9.8 16.1 22.7 16.9 21.1 19.3

Exhibit 9: Recommendation History

200 150 100 50 0 Sep-11 Aug-11 Feb-12 May-12 Mar-12 Nov-11 Dec-11 Jun-12 Jul-12
Rating Buy Buy Buy Buy Buy Buy

Price

Target Price

Source: Bloomberg, ICICIdirect.com Research

Exhibit 10: Recent Releases

Date 7-Feb-12 28-Mar-12 4-Apr-12 9-May-12 22-Jun-12 5-Jul-12 Event Q3FY12 Result Update Banking Industry Q4FY12 Result Preview Q4FY12 Result Update Banking Industry Q1FY13 Result Preview CMP 79 89 93 85 97 99 Target Price 97 104 104 104 104 104

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I, Kajal Gandhi CA Vasant Lohiya CA Jaymin Trivedi MBA-CM research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
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It is confirmed that Kajal Gandhi CA Vasant Lohiya CA Jaymin Trivedi MBA-CM research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Kajal Gandhi CA Vasant Lohiya CA Jaymin Trivedi MBA-CM research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. 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