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India Equity Research Reports, IPO and Stock News
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Profits are here to stay…
DCB’s FY11 results prove that its turnaround strategies have been
effective with the bank declaring a PAT of | 21.4 crore (Q4FY11: | 11.3
crore) as compared to a loss of | 78.5 crore in FY10. The core business
performance strengthened with NII surging 34% YoY to | 189 crore (Idirect
estimate: | 187 crore) as advances and deposits grew 23% YoY
and 17% YoY to | 4271 crore and | 5651 crore, respectively. The FY11
NIM was strong at 3.13% (up 34 bps YoY) with Q4FY11 margin
protected at 3.15% despite rising cost of funds. We had anticipated a
25-30 bps decline in NIM in Q4FY11. However, this impact should be
visible in FY12E as term deposits get repriced. Provisions declined 48%
YoY to | 65 crore boosting PAT further. We expect a 24% CAGR in
business and lower credit costs to boost NII and PAT by a CAGR of 24%
and 87%, respectively, over FY11-13E.
๔ Focus on low cost stable funding to fuel growth in strategic areas…
CASA improved 211 bps QoQ to 35.2% as term deposit declined by
6.3% QoQ while retail deposits share grew to 81.2% of total
deposits (up 219 bps QoQ). DCB is using this low cost stable
funding to pursue growth in select areas of SME-MSME and
mortgages, which constitute 25% (FY10-17%) and 24% (FY10-12%)
of its portfolio, respectively.
๔ Asset quality: a positive surprise…
Asset quality concerns are at bay with both GNPA and NNPA ratios
improving from 8.7% and 3.1% in FY10 to 5.9% and 1% in FY11,
respectively. We were positively surprised by the sequential sharp
improvement of 119 bps and 33 bps in GNPA ratio and NNPA ratio,
respectively. Moreover, the PCR stands comfortable at 87.6% with
100% provision made for legacy unsecured personal loans. This
dispels our concerns on the asset quality deteriorating further. We
expect GNPA ratio of 4.2% and NNPA ratio of 0.6% by FY13E.
Valuation
At the CMP of | 59, DCB is trading at 1.5x its FY13E ABV. We are
confident that strategic business growth, lower credit costs and future
benefit of accumulated losses will lead to sustained profitability. We
expect RoA to improve from 0.6% in Q4FY11 to 0.8% by FY13E. Hence,
we have valued the bank at 1.8x FY13E ABV and maintained our target
price of | 72. We also recommend that investors who bought the stock at
the initiating price of | 66 hold the stock and average at dips.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Profits are here to stay…
DCB’s FY11 results prove that its turnaround strategies have been
effective with the bank declaring a PAT of | 21.4 crore (Q4FY11: | 11.3
crore) as compared to a loss of | 78.5 crore in FY10. The core business
performance strengthened with NII surging 34% YoY to | 189 crore (Idirect
estimate: | 187 crore) as advances and deposits grew 23% YoY
and 17% YoY to | 4271 crore and | 5651 crore, respectively. The FY11
NIM was strong at 3.13% (up 34 bps YoY) with Q4FY11 margin
protected at 3.15% despite rising cost of funds. We had anticipated a
25-30 bps decline in NIM in Q4FY11. However, this impact should be
visible in FY12E as term deposits get repriced. Provisions declined 48%
YoY to | 65 crore boosting PAT further. We expect a 24% CAGR in
business and lower credit costs to boost NII and PAT by a CAGR of 24%
and 87%, respectively, over FY11-13E.
๔ Focus on low cost stable funding to fuel growth in strategic areas…
CASA improved 211 bps QoQ to 35.2% as term deposit declined by
6.3% QoQ while retail deposits share grew to 81.2% of total
deposits (up 219 bps QoQ). DCB is using this low cost stable
funding to pursue growth in select areas of SME-MSME and
mortgages, which constitute 25% (FY10-17%) and 24% (FY10-12%)
of its portfolio, respectively.
๔ Asset quality: a positive surprise…
Asset quality concerns are at bay with both GNPA and NNPA ratios
improving from 8.7% and 3.1% in FY10 to 5.9% and 1% in FY11,
respectively. We were positively surprised by the sequential sharp
improvement of 119 bps and 33 bps in GNPA ratio and NNPA ratio,
respectively. Moreover, the PCR stands comfortable at 87.6% with
100% provision made for legacy unsecured personal loans. This
dispels our concerns on the asset quality deteriorating further. We
expect GNPA ratio of 4.2% and NNPA ratio of 0.6% by FY13E.
Valuation
At the CMP of | 59, DCB is trading at 1.5x its FY13E ABV. We are
confident that strategic business growth, lower credit costs and future
benefit of accumulated losses will lead to sustained profitability. We
expect RoA to improve from 0.6% in Q4FY11 to 0.8% by FY13E. Hence,
we have valued the bank at 1.8x FY13E ABV and maintained our target
price of | 72. We also recommend that investors who bought the stock at
the initiating price of | 66 hold the stock and average at dips.
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