DCB Bank (3QFY15) : Strong execution. Maintain BUY :: HDFC Securities

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Strong execution
DCB Bank’s (DCBB) core earnings +30% and PPoP
+26% were inline with estimates. However net
earnings (+17%) were dented by higher tax
provisions (Rs 74mn; +50% QoQ). Led by strong
revenue growth, the C-I ratio further improved
~150bps QoQ. However, NIM were flat QoQ largely
on the back of interest reversals from fresh
restructuring. Asset quality was stable QoQ with PCR
inching up marginally. DCBB received a one notch
rating upgrade. Loan growth (+29%) was driven
primarily by mortgages & the corp. segment. CASA
(%) continued to decline, on expected lines.
We remain positive on DCBB given (1) high business
& earnings visibility (2) continued improvement in
efficiency (3) uptick in RoAs, despite the full tax
impact (4) well capitalized & healthy B/S and (5)
conservative management. Maintain BUY with a
revised TP of 140 (2x FY17E ABV).
 Growth sustained; CASA (%) declines : Led by strong
growth in mortgages (40%), corp. (28%) & agri (47%)
segments, DCBB’s loans grew ~29% YoY. The bank
continued its cautious stance on the relatively riskier
MSME segment (-2% YoY; consecutive 7-quarter of YoY
decline). We have factored ~24% loan growth over
FY14-17E. CASA % (23.8%; -150bps QoQ) further
declined with the bank’s focus on long tenure retail TD.
 Flattish NIMs : The recent fund raise & decline in
wholesale rates were expected to boost margins.
However, interest reversals due to higher restructuring
(net additions of Rs 270mn) adversely impacted NIMs
(3.7%; flat QoQ) by ~10bps. Further, aggressive growth
in PSL had an adverse impact on yields. Despite the
recent rating upgrade & fund raise, we have factored
a ~20bps NIM compression given the yield pressure
on the loan portfolio.
 Higher restructuring led to rise in stressed assets : A
conservative approach and continued improvement in
risk management enabled DCBB in reporting stable
asset quality. G/NNPA ratio was marginally lower at
1.9/1%, as slippages stood at a mere 1% ann. vs. ~2% in
2Q. PCR inched up ~30bps to 77%. However, the spike
in restructured book (1.2% vs. 0.9%) impacted the
otherwise stable asset quality. We have factored
slippages of 1.1% over FY15-17E.


LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010687