IGI Logo

Result Highlights

* Asset quality: Gross slippages amounted to Rs 4.14 (annualized slippage ratio of 6.3%) but recoveries and upgrades were also healthy at Rs 3.97bn

* Margin picture: NIM at 3.37% was up 6 QoQ, with excess liquidity and stress accretion limiting the benefit from spread expansion

* Asset growth: Advances grew 5.3%/7.9% QoQ/YoY driven sequentially by gold loans, of which co-lending was the main driver

* Opex control: Total opex rose 8.0%/22.0% QoQ/YoY, employee expenses rose 7.7%/25.8% QoQ/YoY and other expenses rose 8.4%/17.7% QoQ/YoY

* Fee income: Commission, exchange, brokerage rose 30.1%/41.1% QoQ/YoY driven by a general improvement across fee income segments

Our view – Improved visibility for enhanced return ratios now precludes bearish stance

Management sounded confident with regard to recoveries but we think sustaining recoveries at a similar level may be difficult:

Recoveries had amounted to a particularly healthy Rs 3.03bn during the quarter. Only a very small amount of the upgrades worth Rs 0.94bn were due to restructuring. Gross restructured book amounted to Rs 20.92bn or an elevated 7.8% of advances, on which DCB holds a Rs 2.65bn provision. Management expects the restructured book to behave well, given less than 2% of it comprises unsecured loans and a significant 62% was derived from the safer mortgages book. Management expected slippages to decline sequentially and reach normalcy in 2- 3 quarters and expected credit cost in 2HFY22 to be much better than in 1HFY22.

Management expects NIM to improve to 360 bps in 2-3 quarters:

Factors driving expansion in NIM would be unwinding of excess liquidity, repayment of sub-debt and, post granularisation of deposits book, deposit rate cuts.

Co-lending with an NBFC jumped 216% QoQ as the tie-up for gold loan sourcing bore fruit: DCB has established this tie-up to focus on a smaller-ticket customer profile normally targeted by NBFCs and not by banks. AIB, SME/MSME, direct gold loans and corporate loans all grew 5.3% QoQ each, while mortgages were flattish, growing 0.4% QoQ. CV loans de-grew -16% QoQ. Management went back to guiding for a doubling of loan book in 3-4 years.

We upgrade DCB from ‘Reduce’to ‘Add’ with a revised price target of Rs 99:

We value the bank at 0.7x FY23 P/BV for an FY22E/23E/24E RoE profile of 6.6/10.2/11.6%.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer