[T.S.R:16772] Dhanlakshmi Bank-Put On A Ratings Watch With Negative Implications

Dhanlaxmi Bank - Valuations Excessive For A Small Bank
We believe that slippages on key parameters like ROA and ROE, higher Opex cost outlay may not enable the bank to command premium. We have put the rating under review until there are indications of improvement in performance..

 

Dhanlaxmi have posted its Q3FY11 earning lower than our expectation, with Q3FY11 net profit at ~Rs72.6 mn a growth robust growth on account of lower base.
 
Balance Sheet growth of 73% Y0Y, with outperform industry growth by 3.2x and 4.7x for advanced and deposits respectively: Dhanlaxmi loan book registered strong 73% YoY growth led by TAG (SME segment) and retail sector. SME book expanded 5% sequentially (now constituting 20% of total loans vs. 15% in Q4FY10) while retail loan book grew 20% sequentially (now constituting 38% of loans vs. 16% in 4QFY10).

 

The bank intends to increase the retail and SME proportion of loan book to 30% each in FY11E with share of WBG (large corporate) expected to decline to 40% (38% in Q3FY11 vis a vis 58% in Q1FY11). We revised our CAGR growth target of 50% (as against 47%) FY10-12E. We revised our CASA estimate for the bank to 20% (earlier 22%).
 
Robust growth in Net interest income (88% YoY), with change in assets mix and curbing funding cost led to margin expansion: Robust NII growth of ~60% YoY and margin expansion of 10bps YoY and 20 bps sequentially on account of capital raise in Q2FY11 and curb in cost of funds on account of maintaining CASA.. We still believe that with the change in advance mix and benefit of QIP issuance to accrue in coming quarter on margin. So we maintain our thesis of improve in margin by 25 bps from current level of 2.6% by FY12E
 

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