Dhanlaxmi Bank (DHABAN)

Company Update
Rating matrix
Rating : Exit on Rally
Stock data
Market Capitalisation | 553 crore
GNPA (Q1FY12) | 6.1 crore
NNPA (Q1FY12) | 2.2 crore
NIM (Q1FY12) 2.0 %
52 week H/L 212 /55
Equity capital | 85.1 crore
Face value | 10
DII Holding (%) 4.9
FII Holding (%) 35.7
Price movement
7,000
5,000
3,000
1,000
Nov-
10
Analyst’s name
Jan-11
Mar-
11
May-
11
Aug-
11
Dhanlaxmi (R.H.S) Nifty (L.H.S)
Kajal Gandhi
kajal.gandhi@icicisecurities.com
Mani Arora
mani.a@icicisecurities.com
Jaymin Trivedi
jaymin.trivedi@icicisecurities.com
Oct-11
250
200
150
100
50
0
ICICI Securities Ltd. | Retail Equity Research
October 11, 2011
Dhanlaxmi Bank (DHABAN)
AIBOC allegations lead to stock tanking 10%...
| 65
As per news reports, the All-India Bank Officers Confederation (AIBOC)
has submitted a memorandum to the RBI alleging that Dhanlaxmi Bank
has manipulated accounts and provisioning, has a mismatch in assetliability
resources, maintains poor capital adequacy ratio and has huge
dependence on call money borrowing. It cautioned against higher NPA
and accused the bank of window dressing its books to inflate profits.
Dhanlaxmi’s management has rejected these allegations regarding them
as baseless. According to Bipin Kabra, CFO, “The union is getting
marginalised every year. Currently, less than 10% workers are in AIBOC.
Our current capital adequacy is at around 10%. We see non-performing
assets dropping every quarter”. Given the seriousness of these
allegations and no response from the RBI on the issue we are cautious
on the bank and would advise investors to avoid the stock. For
investors holding the stock we would recommend exiting the stock on
rallies.
� Long-term asset funding through shorter duration liabilities…
We have analysed the maturity profile of Dhanlaxmi Bank’s assets and
liabilities (FY11 data) to ascertain if there is a mismatch. We infer that
while ~40% of advances and investments lie in the maturity bucket of
three years and above, only 2.5% of deposits and borrowings lie in
the same (refer Exhibit 1). This implies that even though bank’s assets
(especially advances) are heavily tilted towards longer term, it is being
financed through short-term liabilities, which is a cause for concern.
Valuation
Even though the stock has corrected by ~10% in a single session, we are
cautious on it. The bank reported a dismal performance last quarter with
profits declining 43.6% YoY to | 3.4 crore. Despite an estimated business
growth of 35% CAGR and PAT growth of 59% CAGR over FY11-13E,
return ratios are expected to remain depressed with RoA at 0.3% and RoE
at 5.3% by FY13E. Moreover, the recent deferment of its capital raising
plan had also led to an overhang on the stock. However, in light of
AIBOC’s allegations we would recommend avoiding the stock until more
clarifications or facts materialise. We would advise investors already
holding the stock to exit on rallies.
Exhibit 1: Maturity profile of assets and liabilities a concern
Advances + Investments Deposits + Borrowings
| crore Proportion (%) | crore Proportion (%)
1 day - 14 days 298.2 2.3 1237.6 9.4
15 days - 28 days 435.9 3.4 809.4 6.2
29 days - 3 months 937.4 7.4 2781.5 21.1
3 months - 6 months 1106.6 8.7 1451.7 11.0
6 months - 1 year 2018.9 15.9 2397.2 18.2
1 year - 3 years 2786.8 21.9 4144.9 31.5
3 years - 5 years 1587.7 12.5 281.3 2.1
> 5 years 3542.5 27.9 52.2 0.4
Total 12714.1 100.0 13155.7 100.0
Source: Company annual report, ICICIdirect.com Research

ICICI Securities Ltd. | Retail Equity Research
Exhibit 2: Balance Sheet
| Crore FY09 FY10 FY11 FY12E FY13E
Liabilities
Capital 64.1 64.1 85.1 120.1 120.1
Reserves and Surplus 360.4 376.0 759.5 1067.4 1123.4
Networth 424.5 440.1 844.6 1187.6 1243.5
Deposits 4968.8 7098.5 12529.6 16502.9 22767.1
Borrowings 0.0 120.6 626.1 638.5 677.4
Other Liabilities & Provisions 249.5 427.8 267.8 295.1 337.8
Total 5642.8 8086.9 14268.2 18624.0 25025.8
Assets
Fixed Assets 46.2 79.5 134.4 80.2 173.3
Investments 1567.4 2027.8 3639.7 4888.2 6651.8
Advances 3196.1 5006.3 9065.2 12124.3 16526.6
Other Assets 147.1 223.0 493.8 422.4 392.7
Cash with RBI & call money 291.1 137.4 132.4 138.2 144.3
Total 5642.8 8086.9 14268.2 18624.0 25025.8
Source: Company annual report, ICICIdirect.com Research
Exhibit 3: Profit and Loss Account
| Crore FY09 FY10 FY11 FY12E FY13E
Interest Earned 408.4 534.6 906.4 1423.6 2009.9
Interest Expended 286.8 394.0 641.3 1012.9 1373.5
Net Interest Income 121.6 140.5 265.1 410.7 636.4
growth (%) 22.9 15.6 88.6 54.9 55.0
Non Interest Income 79.4 91.0 146.8 154.8 185.7
Net Income 201.0 231.5 411.9 565.5 822.1
Operating expense 113.1 192.9 344.5 454.4 638.6
Gross profit 87.9 38.6 67.4 111.1 183.6
Provisions 8.2 10.9 27.7 66.6 90.9
Taxes 22.2 4.4 13.7 9.6 27.8
Net Profit 57.4 23.2 26.0 34.9 64.8
growth (%) 101.8 -59.6 12.1 34.2 85.6
Source: Company annual reports, ICICIdirect.com Research
Exhibit 4: Key Financial Ratios
FY10 FY11 FY12E FY13E
Net Profit (| crore) 23.2 26.0 34.9 64.8
EPS (|) 3.6 3.3 2.9 5.4
Growth (%) -59.6 -15.6 -4.9 85.6
P/E (x) 17.9 21.3 22.3 12.0
ABV (|) 62.1 96.0 95.7 98.3
Price / Book (x) 0.9 0.7 0.7 0.6
Price / Adj Book (x) 1.0 0.7 0.7 0.7
GNPA (%) 1.5 0.7 0.9 0.9
NNPA (%) 0.8 0.3 0.3 0.4
RoNA (%) 0.3 0.2 0.2 0.3
RoE (%) 5.4 4.1 3.4 5.3
Source: Company annual reports, ICICIdirect.com Research
Page 2

ICICIdirect.com coverage universe (Banking)
[[[[[
Public Sector Banks
Bank of India
NP (| Cr) EPS (|) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code BANIND CMP 326 FY11 2488.7 45.5 7.2 1.3 0.8 15.8
Target 352 FY12E 2549.1 46.6 7.0 1.3 0.7 14.0
Mcap (| Cr)
Bank of Baroda
17145 Upside (%) 8.0 FY13E 3364.3 61.5 5.3 1.1 0.8 16.9
Idirect Code BANBAR CMP 742 FY11 4241.7 108.0 6.9 1.6 1.3 23.5
Target 954 FY12E 4952.8 126.1 5.9 1.3 1.3 21.4
Mcap (| Cr)
Dena Bank
27122 Upside (%) 28.6 FY13E 5925.5 150.9 4.9 1.1 1.3 21.3
Idirect Code DENBAN CMP 74 FY11 611.6 21.3 3.5 0.8 1.0 21.2
Target 120 FY12E 726.4 25.3 2.9 0.7 0.9 18.6
Mcap (| Cr) 2467 Upside (%) 62.2 FY13E 847.3 29.5 2.5 0.6 0.9 18.7
Indian Overseas Bank
Idirect Code INDOVE CMP 95 FY11 1072.5 17.3 5.5 0.9 0.7 14.8
Target 128 FY12E 1269.0 18.2 5.2 0.8 0.6 13.8
Mcap (| Cr)
IDBI Bank
5176 Upside (%) 34.7 FY13E 1655.4 23.7 4.0 0.7 0.7 15.2
Idirect Code IDBI CMP 101 FY11 1650.3 18.4 5.5 1.1 0.7 15.8
Target 160 FY12E 1972.0 20.0 5.0 1.0 0.7 14.7
Mcap (| Cr)
OBC
9944 Upside (%) 58.4 FY13E 2367.2 24.0 4.2 0.8 0.8 15.6
Idirect Code ORIBAN CMP 293 FY11 1502.9 45.3 6.5 1.1 0.9 14.5
Target 410 FY12E 1707.4 51.5 5.7 0.9 1.0 17.9
Mcap (| Cr) 8548 Upside (%) 39.9 FY13E 2178.5 58.5 5.0 0.8 1.0 14.5
Punjab National Bank
Idirect Code PUNBAN CMP 952 FY11 4433.5 124.9 7.6 1.7 1.3 22.6
Target 1050 FY12E 4942.9 156.0 6.1 1.4 1.2 21.0
Mcap (| Cr)
SBI
30161 Upside (%) 10.3 FY13E 6157.9 194.4 4.9 1.1 1.3 21.8
Idirect Code STABAN CMP 1765 FY11 82.7 130.2 13.6 2.1 0.7 12.6
Target 2200 FY12E 95.3 139.1 12.7 1.8 0.7 13.0
Mcap (| Bn)
Syndicate Bank
112077 Upside (%) 24.6 FY13E 136.9 199.8 8.8 1.5 0.9 15.7
Idirect Code SYNBN CMP 100 FY11 1047.9 18.3 5.5 1.0 0.7 16.5
Target 124 FY12E 1277.2 22.3 4.5 0.9 0.8 17.0
Mcap (| Cr) 5732 Upside (%) 24.0 FY13E 1612.3 28.1 3.6 0.8 0.8 19.3
Union Bank of India
Idirect Code UNIBAN CMP 241 FY11 2081.9 39.7 6.1 1.4 1.0 20.9
Target 278 FY12E 2410.6 46.0 5.2 1.2 0.9 19.9
Mcap (| Cr) 12636 Upside (%) 15.4 FY13E 2715.6 51.8 4.7 0.9 0.9 19.0
Private Sector Banks
Axis Bank
Idirect Code UTIBAN CMP 1053 FY11 3388.5 83.0 12.7 2.3 1.7 20.1
Target 1331 FY12E 4055.0 98.8 10.7 2.0 1.5 19.6
Mcap (| Cr)
City Union Bank
43230 Upside (%) 26.4 FY13E 4968.2 121.0 8.7 1.7 1.5 20.3
Idirect Code CITUNI CMP 43 FY11 215.1 5.3 8.1 1.8 1.6 23.5
Target 52 FY12E 285.7 6.7 6.4 1.4 1.7 24.2
Mcap (| Cr)
Dhanlaxmi Bank
1728 Upside (%) 20.4 FY13E 361.3 8.5 5.1 1.1 1.8 23.8
Idirect Code DHABAN CMP 65 FY11 26.0 3.3 19.6 0.7 0.2 4.1
Target - FY12E 35.3 2.9 22.1 0.6 0.2 3.2
Mcap (| Cr)
DCB
553 Upside (%) - FY13E 65.8 5.5 11.9 0.6 0.3 4.7
Idirect Code DCB CMP 39 FY11 21.4 1.1 36.4 1.5 0.3 3.9
Target 60 FY12E 39.9 1.8 22.0 1.2 0.5 6.1
Mcap (| Cr)
Federal Bank
781 Upside (%) 53.8 FY13E 46.7 1.9 20.8 1.1 0.5 5.5
Idirect Code FEDBAN CMP 369 FY11 587.1 34.3 10.8 1.3 1.5 13.5
Target 472 FY12E 689.0 40.3 9.2 1.2 1.2 13.2
Mcap (| Cr) 6308 Upside (%) 27.9 FY13E 865.9 50.6 7.3 1.2 1.3 15.8
ICICI Securities Ltd. | Retail Equity Research
Page 3

Continued…
HDFC Bank
NP (| Cr) EPS (|) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code HDFBAN CMP 458 FY11 3926.4 16.9 27.1 4.2 1.6 16.7
Target 532 FY12E 5074.3 21.8 21.0 3.8 1.7 18.7
Mcap (| Cr)
Kotak Bank
106435 Upside (%) 16.2 FY13E 6590.2 28.3 16.2 3.3 1.9 21.3
Idirect Code KOTMAH CMP 453 FY11 818.3 11.1 40.5 5.0 1.9 14.5
Target 436 FY12E 1006.0 13.7 33.0 4.4 1.9 13.9
Mcap (| Cr)
South Indian Bank
33380 Upside (%) -3.8 FY13E 1221.3 16.6 27.2 3.9 1.9 14.8
Idirect Code SOUIN0 CMP 22 FY11 292.5 2.6 8.3 1.5 1.0 18.5
Target 26 FY12E 352.3 2.4 9.1 1.1 1.0 15.3
Mcap (| Cr)
Yes Bank
2435 Upside (%) 20.6 FY13E 430.2 2.9 7.4 1.0 1.0 14.0
Idirect Code YESBAN CMP 264 FY11 727.1 20.9 12.6 2.4 1.5 21.1
Target 369 FY12E 921.0 25.3 10.4 1.9 1.3 20.6
Mcap (| Cr) 9165 Upside (%) 39.8 FY13E 1306.4 34.1 7.7 1.5 1.5 21.6
ICICI Securities Ltd. | Retail Equity Research
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