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Revenue growth steady; net NPA remains stable

NIM expands 3bp QoQ to 3.3%

* DCB Bank (DCBB) reported 19.6% YoY growth in PAT to INR1.5b (9% beat) in 3QFY25, led by higher NII and healthy other income.

* NII grew 14.5% YoY to INR5.4b (in line, up 6.6% QoQ). NIMs expanded 3bp QoQ to 3.3%. Other income grew 49% YoY to INR1.8b (7% beat).

* Business growth was healthy as advances grew 22.7% YoY/7.5% QoQ to INR477.8b and deposits increased by 20% YoY/3.9% QoQ to INR566.8b. The CASA mix moderated 51bp QoQ to 25.1%.

* Fresh slippages stood at INR3.95b (vs. INR3.89b in 2QFY25). The GNPA ratio improved 18bp QoQ to 3.11%, while the NNPA ratio inched up 1bp QoQ to 1.18%. PCR declined to 62.9%.

* We fine-tune our earnings estimates and expect FY26 RoA/RoE at 0.96%/13.4%. Reiterate BUY with a TP of INR160 (based on 0.8x Sep’26E ABV).

Business growth healthy; GNPA ratio improves 18bp QoQ

* DCBB reported 19.6% YoY growth in PAT to INR1.5b (9% beat), aided by higher NII and healthy other income. In 9MFY25, earnings grew 15.2% YoY to INR4.4b. We estimate 4QFY25 earnings to grow 3.2% YoY to INR1.6b.

* NII grew 14.5% YoY to INR5.4b (in line, up 6.6% QoQ). NIMs expanded 3bp QoQ to 3.3%. Other income grew 49% YoY to INR1.8b (7% beat), resulting in 21.6% YoY growth in total revenue (in line). Management guides for NIM to be ~3.5-3.65%.

* Opex grew 18% YoY to INR4.6b (in line). The C/I ratio moderated 155bp QoQ to 62.7%, aided by steady revenue growth and reduction in employee count. PPoP grew 28.2% YoY to INR2.7b (15% beat). Provisions stood at INR672m (64% YoY, 37% higher than est.).

* Advances grew 22.7% YoY, supported by healthy growth in the co-lending book (up 51.8% QoQ). Mortgages grew 5.6% QoQ, while gold loans grew 4.4% QoQ.

* Deposits rose 20% YoY/3.9% QoQ to INR566.8b, driven by term deposits. The CASA mix thus moderated 51bp QoQ to 25.1%. Consequently, the CD ratio increased to 84.3%.

* Fresh slippages stood at INR3.95b (vs. INR3.89b in 2QFY25). The GNPA ratio improved 18bp QoQ to 3.11%, while the NNPA ratio was broadly stable at 1.18%. PCR declined to 62.9%. Restructured book declined to INR8.6b (1.8% of loans).

Highlights from the management commentary

* The bank targets a cost-to-avg asset ratio of 2.5-2.6% and a cost-to-income ratio of 60% or below in the near term.

* A majority of the growth has come from co-lending. Excluding co-lending, growth has been as good as it was in the previous quarter. The biggest partner has started originating business in co-lending. Home loans, unsecured business loans, gold loans, SME, and CV are various types of co-lending products that the bank is offering with ~7-8 partners.

* DCBB continues to guide for a credit cost of ~45-55bp on average assets.

Valuation and view

DCBB reported healthy earnings in 3QFY25, driven mainly by steady NII and other income, though provisions were higher than expected. Margins improved 3bp QoQ due to improvement in yield on advances. Management expects NIMs to improve in the coming quarters as the asset mix improves in favor of high-yielding business loans. Improvement in fee intensity will also support revenue growth. Loan growth was steady, led by healthy growth in co-lending, while deposits too grew strongly. Fresh slippages stood broadly stable, while the GNPA ratio improved 18bp QoQ. Restructured book was under control at 1.8% of loans. We fine-tune our earnings estimates and expect FY26E RoA/RoE at 0.96%/13.4%. Reiterate BUY with a TP of INR160 (based on 0.8x Sep’26E ABV).

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