DCB Bank - Moving in The Next Orbit; Result Update Q3FY15 :: Edelweiss report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

DCB Bank`s (DCB) reported Q3FY15 PAT of INR 43 cr (up 17% YoY) was in line with our estimates. Key highlights were: (I) strong NII (up 30% YoY) (II) healthy advances growth of 29% YoY and 8% QoQ (III) continued stellar show on asset quality with GNPA at 1.9% (1.9% in Q2) and NNPA at 1.0% (1.1% in Q2). The bank`s well-capitalised position (Tier I: 13.6%), stable funding franchise and stressed assets at ~2% place it in a sweet spot to capitalise on the anticipated macro recovery. DCB is on track to post best-in-class RoA, led by above-industry advances growth and relentless focus on improving productivity. As RoA scales new high, re-rating on Mcap-to-assets will follow.

Core operating performance continues to impress

NII growth came in healthy (up 30% YoY) on higher loan growth and stable NIMs. DCB`s advances growth remained strong in Q3FY15; expanding by 29% YoY and 8% QoQ to INR 9,491 cr. Loan growth traction was higher in the mortgage segment. Deposits grew by 23% YoY and 9% QoQ to INR 11, 850 cr. The CASA ratio remained flat QoQ at 24%. NIMs remained stable QoQ at 3.7%. Going forward, we expect margins to remain in the range of 3.2% to 3.4% for FY15-17E as longer tenor term deposits will take time to get re-priced post the rate cut.

Asset quality intact

DCB`s headline asset quality numbers continued to remain stable, with GNPAs at 1.9% (up 6% QoQ to INR 179cr).  Incremental slippages were lower at 1%. Net NPAs too remained flat QoQ at 1.0% (INR 95cr). Provision coverage ratio remained robust at 77%. Restructured loan book stands comfortable at INR 110cr (1.1% of the loan book). Key highlight for DCB over the past 5-6 quarters has been the considerable improvement in its asset quality - GNPAs down from a high of 4.40% in Q3FY13 to 1.9% in the current quarter. The management has reiterated its comfort on asset quality.

Cost-to-income: Moving in right direction

DCB`s cost-to-income ratio improved 150bps QoQ to 60% in Q3FY15, as the pace of cost increase has stabilized and revenue traction has picked up. Realignment of branch networks, ATMs and rationalizing of employees has enabled DCB to improve productivity ratios. This has led to further improvement in the cost-to-income ratio and allowed DCB to close the gap with peers. We believe that there is further room to improve productivity which will boost RoA and prove to be the next big lever of re-rating. We expect the cost-to-income ratio to improve to ~53% by FY16E.

LINK
https://www.edelweiss.in/research/DCB-Bank--Moving-in-The-Next-Orbit;-Result-Update-Q3FY15/10005427.html