DCB reported advance degrowth of 0.37% for Q4FY20 on a QOQ basis while deposits registered a QOQ growth of 2.14%, even though Q4 usually has historically been the strongest quarter for the bank. NIMS for the quarter stood at 3.64% against 3.71% in Q3FY20. GNPA's stood at 2.46% against 2.20% in Q3FY20 while NNPA stood at 1.16% against 1.03% in Q3FY20. The provision coverage ratio was at 70.81% against 76.99% in Q3FY20. Advances growth to pick up pace from Q3FY21 as COVID induced pain eases and the economy returns to normalcy
GNPA's increase -
upgrades delayed On a QOQ basis GNPA'S registered an increase of INR 795 mn as upgrades were affected by the lockdown. Within GNPA's the highest QOQ addition was in Mortgages, CV's and SME+MSME at 26%, 16% and 11% resp. CASA deposits registered a degrowth of 6.08% on a QOQ basis as depositors used these to get over temporary liquidity issues.
In home loans the bank has given a moratorium of 52% by value and in business loans or LAP 56% moratorium has been given. April and May the bank generated ~Rs. 800 crores of retail term deposits and replaced a lot of the bulk deposit and also got some refinance from NHB, SIDBI. 60%-70% of the customers are confident that over the next 3-6 months businesses will revive. Agri retail might be the first to immediately start after lockdown and tractor finance should also start, ~60%-70% is expected to come back. in April, the bank collected 56.9% in Home Loans and ~52% in Business Loans. No disbursals since mid-March, for nearly 45 days
Recoveries and LTV Cushion
In March the bank missed out on ~12-15 crores of recovery, upgrade which was very much in the pipeline. Average LTV is 49% in Home Loans, 37% in Business Loans self-occupied residential/ commercial is 87%, providing cushion to the bank incase of defaults as there is so much equity in the loan. The banks loan book is largely focused on self-employed. Almost 80% of customer base is self-employed - tractor is self-employed, KCC is selfemployed; home loans ~70% is self-employed. Business loan, which is LAP, almost 90% is self-employed.Top 20 loans is 5.3%. No major pain points are expected to emerge out of the existing loan book with 48% of the customers in non-metro areas.
Fee income and banks charges will be negligible to nil while the bank may also save some on legal and other costs related to disbursals. First quarter there may not be any action as the bank does not do personal loans. Gold loans are being disbursed, some corporate loans as well, some tractors loans and KCC loans are being disbursed. The bank has delayed hiring and replacement. The branch addition in FY20 have been delayed due to the lockdown and may bundle up in the next 2 quarters as most of the work at nearly 10-12 branches is almost complete.
Valuation and Outlook
The bank has adopted a different approach vis-a- vis the industry approach of replacing focus on casa with retail deposits replacing bulk deposits which is evident from the continuous drop in the top 20 depositors to 9.27% in FY20 against 12.01% in FY19 after being around 14-15% from FY15- 18. FY21 is expected to be a challenging year and we have assumed flat to no growth in Q1 followed by a normalisation in rest of the year.Healthy LTV's provide cushion while focus on self-employed segment might result in irregularities. We expect to see some softness in yields on advances as the bank maintains a more cautious approach with mild softening in cost of deposits as well leading to lower NIM's in FY21. Over the next 2 years we expect advances and deposits to register a CAGR of 16% each while PAT CAGR is expected to be around 29%. Currently the stock is trading at 0.5x p/b of FY22E ADBV of INR 142.2. We retain our buy recommendation with a target of INR 231 in 18 months based on 1.62x p/adbv of FY22E.
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