DCB Bank (DCB)|Q2FY15 First Cut Analysis | Strong business growth continues but higher than expected provision expenses leads to lower profitability:: IndiaNivesh

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During the quarter, the Bank had one-off Interest Income of Rs 54.6 mn and a
corresponding Tax Expense of Rs. 30.6 mn. This pertains to Tax Refunds of earlier
years. We have adjusted these one-offs in our numbers.
Net Interest Income (NII) of DCB Bank increased at a healthy pace of 23% y-o-y to Rs
1,177 mn in Q2FY15. Interest income grew 25% y-o-y to Rs 3.3 bn whereas interest
expense grew 23% y-o-y to Rs 2.2 bn.
DCB Bank’s Non Interest Income increased 36% y-o-y (+7% q-o-q) to Rs 370 mn in
Q2FY15 led by 29% y-o-y growth in fee income. Operating expenses increased 21%
y-o-y (+3% q-o-q) to Rs 948 mn mainly due to 22% y-o-y increased in employees
cost.
Pre Provisioning Profit (PPP) increased 36% y-o-y (-4% q-o-q) to Rs 544 mn. Provisions
increased at a faster pace of 96% y-o-y to Rs 137 mn. Net profit of DCB Bank increased
17% y-o-y (-10% q-o-q) to Rs 387 mn in Q2FY15.
Advances grew at a healthy pace of 32% y-o-y (+6% q-o-q) to Rs 87.9 bn, mainly
driven by 90% y-o-y growth in Agri and Inclusive Banking and 35% y-o-y growth in
Mortgages. Deposits also grew at a healthy pace of 24% y-o-y (+3% q-o-q) to Rs
109.0 bn on account of robust growth of 37% y-o-y in retail term deposit.
The asset quality deteriorated slightly as Gross NPA and Net NPA increased 12 bps
and 10 bps sequentially to 1.90% and 1.07%, respectively. Provision Coverage Ratio
(PCR) of the bank also stood healthy at 76.79%.
Valuation: DCB Bank reported overall mix set of financial performance across all
the business segments in Q2FY15. However, we have to wait for the management
commentary on fresh slippages and its future guidance on asset quality. At CMP of
Rs 91, the stock is trading at P/ABV of 1.7x and 1.5x for FY15E and FY16E respectively.
We have a HOLD rating on the stock with the target price of Rs 88/-. We will come
out with detail report (result update) after the conference call, schedule on
November 03, 2014.

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