[T.S.R:16765] Dhanlakshmi Bank-A Sell On All Parameters

Analysts have downgraded Dhanlaxmi's FY11 and FY12 estimated EPS by 37.4% and 34.2% respectively, given the delay in materialization of expected improved productivity and higher NPA provisions. Lower RoE, business growth and delayed improvement in NIMs will not allow RoA to double only by FY13e to 0.6%.

n       Rapid business growth, higher margin. The bank continued on its rapid business growth strategy path - advances grew 77% yoy, and deposits 75.5% yoy. , at 2.6%, was 10bps higher yoy, as the bank increased the share of secured retail lending. CASA grew an impressive 60.7% yoy, with +100% yoy rise in current account.

n       Improving fees and productivity. Non-interest income, ex Treasury, substantially increased (128.3% yoy). Although 3QFY11 cost-to-income improved 679bps yoy to 83.5%, it is still higher than peers'. We raise our FY11e and FY12e operating expense 4.1% and 10.8% respectively as we believe the bank is likely to continue investing in human capital and technology to sustain rapid growth.

n       Improved asset quality. Gross NPAs decreased 8.6% qoq. NPA coverage improved 692bps to 50.7%. The management is likely to ask RBI for more time to reach the 70% NPA coverage norm.

n       Valuation and risks. Dhanlaxmi would trade at 1.4x FY12e and 1.3x FY13e ABV. Key risks: More-than-expected operating costs and higher-than-expected slippages.

Sell
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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