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NIM expansion and lower provisions drive earnings

Asset quality improves

* DCB Bank (DCBB) reported 9.5% YoY/23% QoQ growth in PAT to INR1.6b (18% beat) in 4QFY24, driven by a sharp decline in provisions.

* NII grew 4% YoY to INR5.1b (up 7% QoQ; 4% beat), aided by 14bp QoQ expansion in margins to 3.62%.

* Advances grew 19% YoY, supported by healthy growth in mortgages, agri, and gold loans. Deposits rose 19.7% YoY/4.7% QoQ, led by growth in both CASA and term deposits. CASA mix stood at 26% in 4QFY24.

* GNPA ratio improved 20bp QoQ, while NNPA ratio improved 11bp QoQ to 1.11%. PCR improved 130bp QoQ to 66.4% during the quarter.

* We raise our earnings estimates by 3.9%/3.5% for FY25/FY26. We estimate FY26E RoA/RoE at 0.95%/13.5%. Reiterate Neutral with a TP of INR155 (based on 0.8x FY26E ABV).

Business growth healthy; asset quality improves

* DCBB reported 9.5% YoY/23% QoQ growth in PAT to INR1.6b (18% beat), driven by a sharp decline in provisions. In 4QFY24, provisions stood at INR241m (down 54% YoY; 53% lower than MOFSLe).

* NII grew 4% YoY to INR5.1b (up 7% QoQ, 4% beat). Other income rose 11% YoY (in line), resulting in a 6% YoY growth in total revenue (in line). This growth was driven by a 14bp QoQ improvement in margin to 3.62%.

* Opex was up 13% YoY as the bank continued to invest in the business and ramped up the employee count. PPoP declined 4.2% YoY (in line).

* Advances grew 19% YoY/5.1% QoQ, supported by healthy growth in mortgages, agri, and gold loans. Deposits grew 19.7% YoY (+4.7% QoQ), led by growth in both CASA and term deposits. CASA ratio stood at ~26%.

* Slippages moderated to INR3.22b (vs. INR4.26b in 3QFY24). GNPA ratio thus improved 20bp QoQ, while NNPA ratio improved 11bp QoQ to 1.11%. PCR nevertheless improved 130bp QoQ to 66.4%. The restructured book stood at INR10.7b (2.6% of loans).

Highlights from the management commentary

* Management guided for an RoA of 1% or above and an RoE closer to 14% in the near term.

* The bank guided for a C/I ratio of 55% or below in the near term, and costto-average assets of 2.4-2.5%.

* NIM expanded 14bp QoQ to 3.6%. Mix change in both deposits and advances is likely to aid NIM going forward.

* Mortgages (Home Loan + LAP), MSME/SME, Gold Loans, Co-lending, AIB, and Construction Finance are expected to lead the growth trajectory

Valuation and view: Maintain Neutral with a TP of INR155

DCBB reported a steady quarter, with earnings exceeding our estimates due to lower provisions. Margin improved 14bp QoQ to 3.62%, and management guided NIM to sustain at 3.65-3.75% in the medium term, benefitting from mix change in both deposits and advances. Loan growth was steady due to a healthy growth in mortgages, agri and gold loans, while deposits grew strongly, led by both CASA and term deposits. Fresh slippages moderated, while the restructured book stood under control at 2.6% of loans. We raise our earnings estimates by 3.9%/3.5% for FY25/FY26. We estimate FY26E RoA/RoE at 0.95%/13.5%. Reiterate Neutral with a TP of INR155 (based on 0.8x FY26E ABV).

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