ICICIDrect - Pick of the Week - Dena Bank (Buy: Rs 34, Target: Rs 41)

Dena Bank (DENBAN)

Current Price: Rs 34 Target Price: Rs 41

Dena Bank, a leading mid-size public sector bank, has witnessed a
significant improvement in asset quality. This coupled with a good resource
profile, should help it maintain earnings growth.

At the current price of Rs 34, the stock trades at attractive valuations of
1.0x its FY07E ABV and 0.9x its FY08E. We expect the bank to continue with
steady earnings growth in future and show further improvement in RoA.

The bank has substantially de-risked its investment portfolio by shifting
securities to held-to-maturity (HTM) category. Currently, securities held in
the available-for-sale (AFS) category account for less than 35% of total
investment book. It has also modified the duration of AFS portfolio to less
than 2 years. For 9MFY07, the bank has an annualized return on net worth of
22%.

We expect the stock to trade at least 1x its FY08E ABV, giving us a target
price of Rs 41, an upside of 20% over the next 6 months.

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