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DCB Q3FY14 results update

January 20, 2014, Monday, 06:48 GMT | 01:48 EST | 11:18 IST | 13:48 SGT
Contributed by Nirmal Bang


DCB Bank Ltd (DCB) reported results above expectations driven by stable margins and improvement in asset quality. PAT increased 35.1% on YoY basis and stood at Rs 36.4 cr.
 
- NIMs stood at 3.55%; down by 13 bps QoQ which was broadly on expected lines as there was low cost borrowings raised by the bank in the last quarter. Moreover, a sharp dip in CASA ratio also impacted margins. For Q4FY14, margins would see further compression as the bank ramps up its Priority Sector Lending book which is low yielding segment. As per management, margins should range ~3.3% for FY14E.
 
- Growth was driven by agri and corporate book while SME/MSME book continued to witness run down. However, the retail book (particularly mortgage book) continued to remain strong. Management is targeting growth of 22%; we expect growth of 20.5% on the advance book for FY14E.
 
- Though deposits increased 26.9% YoY; CASA deposits continue to decline with CASA ratio now at 24.8% (26.9% in Q2FY14 and 28.9% in Q3FY13). Growth in deposits was driven by higher term deposits. Improving CASA ratio remains a challenge for the bank. However, as the newly opened branches becomes operational, CASA ratio will improve going forward.
 
- Despite increase in branches by 12 during the quarter; cost to income ratio remained impressive and under control at 63.4%. Management aims to open 15-20 branches in Q4FY14E. We believe that the cost to income ratio will continue to head southwards as operating leverage kicks in; meeting management target of reaching sub 60% levels by FY15E.
 
- 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 at Rs 23.74 cr vs 18 cr in Q2FY14. Provision coverage ratio stood healthy at 84.25%.
 
- CAR stood at 12.86% as on Dec 2013 of which Tier I Ratio stood at 11.98%.
 
- NRI deposits grew 14% QoQ to Rs 739 cr and is the focus area of the bank.
 
DCB has emerged as a successful player in a tough environment by focus on consolidation and steady improvement in most of the parameters. With higher growth, stable margins, improving productivity, improving asset quality and adequate capitalization, the bank is all set to enter in new phase of growth path. We expect DCB to report 29.8% CAGR in PAT over FY13-FY15E leading to RoE of 14.1% and RoA of 1.3% for FY15E. 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, the stock is trading at 1.28x and 1.13x FY14E and FY15E Adj BVPS and 9.48x and 8.29x FY14E and FY15E EPS respectively. We maintain our BUY rating with a revised target price of Rs 76 (1.5x FY15E ABV) indicating an upside of 33% from current levels.