Buy DCB Bank Ltd for the Target Rs. 235 by Motilal Oswal Financial Services Ltd
In-line performance; business outlook remains steady NIMs contract 4bp QoQ
* DCB Bank (DCBB) reported 36% YoY growth in PAT to INR2.13b (broadly in line), as lower provisions compensated for modest other income.
* NII grew 18% YoY to INR6.8b (in line, up 4% QoQ). NIMs contracted 4bp QoQ to 3.35% in 1QFY27.
* Other income declined 17% YoY/declined 7% QoQ to INR2b (8% lower vs MOFSLe), driven by a decline in treasury gains. Opex grew ~10% YoY (2% QoQ) to INR5.4b. PPoP stood at INR3.4b (up 5% YoY/1% QoQ; broadly in line).
* Business growth remained healthy with advances growth of 17.1% YoY/decline of 0.1% QoQ, while deposits grew 20.1% YoY/2.6% QoQ. CASA mix declined to 21.7% vs 22.4% in 4QFY26.
* GNPA/NNPA ratios improved to 2.43%/0.84% (down 2bp/5bp QoQ), while PCR increased to ~66%. Slippage ratio declined to 2.7% vs. 2.3% in 4QFY26.
* We largely maintain our earnings and estimate FY27E RoA/RoE of 1.03%/15.2%. Reiterate BUY with a TP of INR235 (based on 0.9x FY28E ABV).
Asset quality improves; guides for moderation in funding costs
* DCBB reported PAT of INR2.13b (up ~35.6% YoY/ ~3.7% QoQ; largely in line), driven by lower-than-expected provisions, which were offset by lower other income.
* NII grew 17.8% YoY/4.4% QoQ to INR6.84b (largely in line). NIM contracted 4bp QoQ to 3.35% in 1QFY27. Other income declined 16.9% YoY/7.2% QoQ to INR1.96b (8% lower vs MOFSLe).
* Opex grew 9.5% YoY/2.2% QoQ to INR5.36b (largely in line). PPoP, thus, grew 5.2% YoY/0.6% QoQ to INR3.44b (miss by 5%).
* Provisions were lower at INR571m (down 50.4% YoY/ down 17.3% QoQ, 29% lower vs MOFSLe). PBT grew to INR2.87b (36% YoY/5.1% QoQ, largely in line).
* Advances grew 17.1% YoY/declined 0.1% QoQ, led by the gold book. While the mortgage book grew slower at 9.9% YoY/ 0.8% QoQ, the co-lending book declined by 10.6% QoQ.
* Deposits grew healthy at 20.1% YoY/2.6% QoQ, while CASA deposits growth was slow at 11.5% YoY/declined 0.7% QoQ. As a result, CASA ratio declined to 21.65% vs 22.4% in 4QFY26. CD ratio declined by 220bp QoQ to 80.5%.
* Fresh slippages moderated by 25.9% QoQ, with annualized slippage ratio increasing to 2.7% vs 3.3% in 4QFY26. GNPA/NNPA ratios improved to 2.43%/0.84% (down 2bp/5bp QoQ), while PCR increased to ~66%.
Valuation and view
DCBB reported in-line performance, with both NII and PAT meeting expectations, while lower-than-expected provisions offset weaker other income. Margins contracted by 4bp QoQ, and management expects further expansion driven by an improving asset mix and a decline in the cost of deposits. Business growth remained healthy, supported by an increased focus on higher-yielding segments such as mortgages. Asset quality improved, with a decline in the GNPA ratio leading to lower provisions. The bank expects growth to remain robust, guiding for an RoE of 13.5% in FY27 and 14.5% in FY28, along with an RoA target of ~1%, supported by better NIMs, improving asset quality, and enhanced operating efficiency. We largely maintain our estimates for FY27 and project an FY27E RoA/RoE of 1.03%/15.2%. Reiterate BUY with a TP of INR235 (based on 0.9x FY28E ABV)
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