DCB Bank | Numbers in line with our expectation; improving productivity with healthy asset quality ::IndiaNivesh

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Net Interest Income (NII) of DCB Bank continues to increase at a healthy pace of
30% y-o-y (+8% q-o-q) to Rs 1,219 mn (our estimate: Rs 1,223 mn) in Q3FY15. Interest
income grew 23% y-o-y to Rs 3.6 bn whereas interest expense grew 19% y-o-y to
Rs 2.3 bn.
DCB Bank’s Non Interest Income increased at a robust pace of 46% y-o-y (+4% q-o-q)
to Rs 480 mn in Q3FY15 led by 320% y-o-y growth in treasury income as yields on
G-Secs have come off by 40-50 bps in Q3FY15. Operating expenses increased 26%
y-o-y (+7% q-o-q) to Rs 1.0 bn mainly due to 27% y-o-y increased in other operating
expenses as the bank has added 30 branches in last one year and the total branch
network of the bank stood at 145 as of Q3FY15.
Pre Provisioning Profit (PPP) increased 47% y-o-y (+14% q-o-q) to Rs 684 mn (our
estimate: Rs 668 mn) helped by robust growth in other income. Provisions also
increased at a faster pace of 34% q-o-q (+84% y-o-y) to Rs 184 mn. However, it also
helped the bank to improve its provision coverage ratio (PCR) 28 bps q-o-q to 77.07%
in Q3FY15. Net profit of DCB Bank increased 17% y-o-y (+3% q-o-q) to Rs 425 mn
(our estimate: Rs 444 mn) in Q3FY15


Advances continue to grow at a healthy pace of 29% y-o-y (+8% q-o-q) to Rs 94.9
bn, mainly driven by 42% y-o-y growth in Mortgages and 40% y-o-y growth in Agri
and Inclusive Banking. Deposits also grew at a healthy pace of 24% y-o-y (+9% q-o-q)
to Rs 119.0 bn on account of robust growth of 38% y-o-y in retail term deposits.
The asset quality improved in Q3FY15 realized through cautious lending and an
aggressive emphasis on recoveries. Gross NPA and Net NPA decreased 3 bps and 7
bps sequentially to 1.87% and 1.00%, respectively.
Valuation:
DCB Bank reported overall strong set of financial performance across all the business
segments in Q3FY15. It is adequately capitalised with tier 1 ratio of 14.4%. DCB
Bank is well-placed in terms of capital adequacy and asset quality, which are major
concerns of the banking industry. Return ratios are also decent with ~1.3% RoA and
~15% RoE. So, we are positive on the stock with long term perspective. However, at
CMP of Rs 123, the stock is trading at P/ABV of 2.3x and 2.1x for FY15E and FY16E
respectively. We continue to maintain ‘HOLD” rating on the stock with revised target
price of Rs 120/- (P/ABV of 2.0x for FY16E).