Dena Bank

THE buzz in the banking industry on a likely consolidation among state-owned banks, after a meeting between finance minister Pranab Mukherjee and PSU bank chiefs, appears to have been the driver for the rise in stock price of Dena Bank. The scrip has gained 31% in November 2009 compared to just 6% gained by the Nifty, with the market viewing the bank as a potential acquisition target for one of the large state-owned banks.

Despite the recent upsurge in price, the stock still remains one of the cheapest banking stocks in terms of valuations. The Dena Bank stock is trading at a price-to-book value (P/BV) ratio of 1.1. Most of the banks are trading at a much higher price than their book values. In fact, top state-owned banks such as State Bank of India, Punjab National Bank, Bank of India and Bank of Baroda are trading at an average valuation of roughly two times their book value. However, Dena Bank, historically, has traded at much lower valuations.

What is disconcerting is the huge fluctuations in Dena Bank’s performance from quarter-to-quarter. For instance, in the past four quarters, the year-onyear growth in profit ranged from 68%, at best in the June 2009 quarter, to 0% in the March 2009 quarter. In fact, on other parameters, the bank’s performance has been better than many of its peers. For instance, in FY09, it posted a net interest margin (NIM) of 2.9%. Even in earlier financial years, its NIM hovered close to 3%, which is considered as a benchmark in the banking industry.

The bank posted a return on assets (RoA) of 1.02% in FY09, which is roughly close to the banking industry average. It reported a capital adequacy ratio of 11.6% at the end of September 2009 which is in line with regulatory norms.

At around 1% of its net advances, its net non-performing assets or bad loans’ asset quality is satisfactory, if not the best in the industry. In a nutshell, the bank’s performance on the basis of these parameters is not a cause for concern. However, its growth rate is one of the lowest in the industry. In the past five financial years, its profit has not even doubled, which makes it one of the slowest-growing banks.

From a strategic investor’s perspective, Dena Bank can offer value with a branch network of 1,120 branches. But from retail investor’s point of view, it seems that, at current levels, the price has factored in synergies of consolidation, to an extent, which makes the current rise in price speculative.

Stock views on Nalco, Dena Bank, Royal Orchid Hotels

IndiaInfoline on Nalco - Target Rs 445

IndiaInfoline is bullish on National Aluminium Company (Nalco) and has recommended buy rating on the stock with a target of Rs 445, in its research report.

"On the daily chart, National Aluminum has given a trendline breakout after closing at its 52-week high. The stock has rallied sharply over the past few weeks holding on to its short-term support trendline. This week, we saw Nalco gaining fresh upside momentum after crossing over its stiff technical resistance levels of Rs 404-407 accompanied by high volumes."

"On Thursday, the stock rallied by 7% in a rangebound market, confirming the bullish set up. The other supportive technical oscillators RSI and Stochastic are exhibiting positive divergence which signifies the up move may extend to the levels of Rs 445. Based on above observations, we recommend high risk traders to buy the stock in the range of Rs 414-422 for target of Rs 440 and Rs 445. It is advisable to maintain a stop loss of Rs 406 on all long positions," says IndiaInfoline research report.

Angel Broking on Dena Bank - Target Rs 104

Angel Broking has recommended a buy rating on Dena Bank, with price target of Rs 104, in its report

"Dena Bank, with a strong CASA ratio of 36.9%, is better placed than peers to protect its NIMs. Post the proposed capital infusion, the Bank's Tier-I ratio will improve to 9.9% by end FY2011E from 6.8% in FY2009 and enable it to maintain its CAR well above 12% levels till FY2012E. We estimate Advances to grow at 16% CAGR over FY2009-12E driving Earnings' CAGR of 15% over the period. At the CMP, the stock is trading at attractive valuations of 0.7x FY2012E ABV. We have valued the stock at its 5-year median P/ABV of 0.9x FY2012E ABV and arrived at a 15-month target price of Rs 104, an upside of 23% from current levels. We Initiate Coverage on the stock with a Buy recommendation," says Angel Broking report.


SKP Securities on Royal Orchid Hotels - Target Rs 108

SKP Securities has recommended a buy rating on Royal Orchid Hotels, with price target of Rs 108, in its report.

"At current market price, Royal Orchid Hotels is trading at EV/EBITDA of 12.0x and 8.0x of FY11E and FY12E EBITDA, respectively. We have valued the stock at 9.5x its FY12E EV/EBITDA (which is inline with its historical average and discount to its peer group). We expect ROHL’s EBITDA to grow at a CAGR of 17.35% over FY09-FY12E. We hereby initiate coverage on ROHL Ltd. and recommend buy rating with a target price of Rs 108 (32% upside) in 15 months," says SKP Securities report.

Views on banking stocks Corporation Bank, Karnataka Bank, South Indian Bank, Dena Bank,

Angel Broking on CORPORATION BANK

We are positive on Corporation Bank due to its efficient operations reflected in low operating expenses, as a percent to average assets, superior asset quality and proactive investments in modern distribution and payment systems. But the bank’s relatively small size and scope of operations as well as urban focus that subjects it to greater competition from private banks, temper the growth outlook on the key competitive parameters of CASA and fee income.

Karvy Stock Broking on DENA BANK

At current valuations, Dena Bank is the most attractively valued bank in our government banking universe, it is also the smallest. As a result of the wage hike provisions and lower other income we revise our FY2009 EPS to Rs 12.8 and FY2010 EPS to Rs 16.8. In FY2009 earnings would only increase by 2% y-o-y.

SMC Global on SOUTH INDIAN BANK

Kerala-based South Indian Bank has drawn up a five-year plan to drive total business to Rs 75,000 crore by March 2013. Under the five-year plan, banks deposit are likely to grow to Rs 44,000 crore and advances to Rs 31,000 crore by March 2013. We believe that stock is undervalued to the future potential price.

SMC Global on KARNATAKA BANK

Karnataka Bank has a dominant presence in the southern and western parts of India. With 12.17% capital adequacy as on March 2008, we believe the bank has sufficient capital to grow its loan book and comply with Basel II norms. With the implementation of Basel- II norms, the management expects a 100bps impact on its capital adequacy. We believe that stock is undervalued to the future potential price.