Published on 17/07/2017 11:39:25 AM | Source: Motilal Oswal Securities Ltd

Neutral DCB Bank Ltd For Target Rs.192.00 - Motilal Oswal

Posted in Broking Firm Views - Long Term Report| #Banking Sector #Broking Firm Views Report #Motilal Oswal #DCB Bank Ltd

Healthy PAT growth backed by one-off other income and Opex control

* DCB Bank reported healthy PAT growth of 39% YoY (23% QoQ) to INR652m (10% above estimate). PPoP performance surprised (+18%/+47% QoQ/YoY, 14% above estimate) driven by one-off treasury gains of INR214m

* NII grew 32% YoY to INR2.3b, helped by 24% growth in interest earning assets and 18bp YoY improvement in reported NIM. NIM improved 21bp QoQ after adjusting for one-off IT refund of ~INR9m received in 4Q. Opex was controlled with CI ratio at 57.2% (-220bp/-370bp QoQ/YoY)

* Asset quality deteriorated with gross/net slippages at 2.7%/1.7%. Slippages increased 19% QoQ to INR887m. Recoveries and upgrades declined to INR210m (INR187m excluding INR23m from sale to ARC). GNPA/NNPA stood at 1.74%/0.92%

* Loans grew 3% QoQ and 22% YoY to INR163b, driven by 22% YoY growth in each of mortgages, SME, agri and corporate banking. Total retail loans grew 1%/16% QoQ/YoY and stood at 54% of the loan book

* Other highlights a) CASA ratio improved to 27% v/s 24% in 4Q, b) CAR stood at 15.3%, with Tier 1 ratio of 13.4% (post QIP of INR3.8b in 1QFY18), c) Number of branches reached 290.

* Valuation and view:We expect loan growth (25% CAGR) to stay ahead of system loan growth. Back-ended loaded branch expansion costs would keep near-term CIR elevated at ~60%. Return ratios are likely to remain muted in the near term, with RoA/ RoE at at ~1%/11-13%. We will revise our estimates post the earnings concall

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