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DCB Bank Q4FY14 results update

April 21, 2014, Monday, 04:49 GMT | 23:49 EST | 09:19 IST | 11:49 SGT
Contributed by Nirmal Bang


DCB Bank Ltd (DCB) reported results broadly in line with expectations driven by marginal improvement in margins on sequential basis. PAT increased 14.5% YoY and 7.5% QoQ and stood at Rs 39.1 cr.

- NIMs stood at 3.59%; up by 4 bps QoQ and 7 bps YoY mainly on account of higher CD ratio (up 200 bps QoQ). For FY14, NIMs stood at 3.56%. As per management, margins should range ~3.25%-3.35% for FY15E.

- Growth was driven by agri and corporate book while SME/MSME book continued to witness run down. The retail book (particularly mortgage book) continued to remain strong; though mortgage book witnessed slight moderation in terms of growth as compared to earlier quarters. Management aims to continue to grow the book at current pace with more focus on SME/MSME and retail book.

- Deposits increased 23.5% YoY; while CASA deposits witnessed increase of 13.6% YoY. Growth in deposits was driven by higher term deposits. Improving CASA ratio (currently at 25%) remains a challenge for the bank. However, as the newly opened branches become operational, CASA ratio should witness improvement going forward.

- Despite increase in branches by 15 during the quarter; cost to income ratio remained impressive and under control at 62.4% reflecting operational efficiencies. We believe that the cost to income ratio will continue to head southwards as operating leverage kicks in.

- Gross NPA improved sequentially; of which large portion came from write offs. The write offs were primarily from the personal loan segment. Corporate book is still holding up well; whereas the SME/MSME book witnessed some increase in stress. Fresh slippages stood higher at Rs 34 cr vs 24 cr in Q3FY14. Slippages for FY14 stood at Rs 97 cr of which Rs 53 cr were from SME. The bank restructured nearly Rs 64 cr in the corporate book in FY14 taking the total standard restructured book to Rs 77 cr (0.9% of total advance book). As per the management, 2-3 accounts are in the watchlist which may come up for restructuring.

DCB has emerged as a successful player in a tough environment by focus on consolidation and steady improvement in most of the parameters. Going forward, we believe that operating leverage and focus on non interest income will lead to improvement in the banks return ratios. However, as tax liability builds in from FY15E and also as the bank is planning to raise money via QIP, return ratios may remain at similar levels. We expect DCB to report 13.6% CAGR growth in PAT over FY14-FY16E leading to RoE of 13.8% and RoA of 1.2% for FY16E. We have seen a significant re-rating in the stock in the last one quarter driven by consistently improving performance which we believe is sustainable.

At CMP, DCB is trading at 1.26x and 1.1x FY15E and FY16E Adj BVPS and 9.47x and 8.19x FY15E and FY16E EPS respectively. Given the recent run up in the stock price we have revised our rating from BUY to HOLD with a target price of Rs 71; indicating an upside of 10.7% from current levels.