The second public issue of Dena Bank, one of the oldest public sector banks in the country, will open on January 24, 2005. Through this public issue, the company has put on offer 80 m equity shares of the face value of Re 10 each. The issue is on a fixed price basis at a premium of Rs 17 over and above the face value. At a price of Rs 27 per share, the issue aggregates to Rs 2.2 bn. The issue will bring down the government holding in the bank from the present 71% to 51%.
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About the company
With over 66 years of presence and being one of the first banks to be nationalized, Dena Bank, originally incorporated as "Devkaran Nanjee Banking Company Ltd", has an extensive network in the western region of the country. The bank has the distinction of establishing the first fully computerized branch at Nepeansea Road, in Mumbai, in the early 1990s.
Despite having augmented its branch network from 235 (at the time of nationalization) to 1,130 branches today, the bank has lagged behind its peers in terms of its retail focus. Retail loans that account for a mere 8% of the bank’s total advances also seem to be mainly concentrated in the rural areas. The bank has a lot of catching up to do to match its peers in this respect.
The main concerns for the bank remain its capital adequacy ratio of 10.3% (which is lower than peers) and NPAs to advances ratio of 7.9% (highest in the industry), which the bank hopes to correct with the success of this issue. The credit growth of the bank that was on an escalation track for the past couple of years, has once again dwindled due to the lack of sufficient capital to support it.
Our IPO analysis
While this write-up was just a brief regarding the overall business of Dena Bank, we shall put up a detailed report on the issue soon, which will elaborate on the business model of the company as well as its comparative standing with its peers and its growth prospects going forward. The report will also cite the reasons to apply/not apply for the public issue.
At the current price of Rs 38, the stock is trading at a price to book value ratio of 1.8 based on 1HFY05 book value.This puts it at the lower end of the valuation spectrum. The weak fundamentals of the bank seem to have been already factored in to the prices.
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