Fall in credit growth, elevated provisions and weak asset quality with rising slippages hit earnings in June quarter
DCB Bank shares plunged 14 percent intraday on July 17 after the lender reported a dismal set of earnings for the quarter ended June 2019.
Profit during the quarter grew 17 percent to Rs 81.1 crore and net interest income increased 11.7 percent to Rs 304.8 crore compared to year-ago period.
A CNBC-TV18 poll estimate for profit was Rs 93.7 crore and net interest income Rs 313.6 crore for the quarter.
Fall in credit growth, elevated provisions and weak asset quality with rising slippages hit earnings in June quarter.
"DCB reported a dismal set of results with a profit miss, mainly due to a further deceleration in credit growth/NIMs and subdued fees," Emkay said.
The brokerage maintained sell rating on the stock with a target price at Rs 170 (implying 29 percent potential downside from current levels), mainly due to deteriorating asset quality, weak liability profile and expensive valuations for a sub-optimal return on assets of 1 percent.
Asset quality slid to the worst in the last 13 quarters. Gross non-performing assets ratio increased 12bps sequentially to 1.96 percent and net NPAs grew 16bps to 0.84 percent in Q1, mainly due to stress in corporate agri portfolio.
Provisions for bad loans increased to Rs 40.6 crore compared to Rs 33.2 crore in June quarter 2018 and Rs 34.8 crore in March quarter while provision coverage ratio declined to 75.6 percent against 78.8 percent in the previous quarter.
Slippages for the quarter stood at Rs 145.4 crore, higher compared to Rs 98.5 crore in March quarter.
Emkay said credit growth slowdown is mainly a result of the bank's conscious stance on the corporate front and a moderation in the SME/retail book.
DCB plans to acquire loan (corporate)/deposit (retail/NRI) portfolio to the tune of Rs 1,000 crore/Rs 1,160 crore from Abu Dhabi Commercial Bank. The rationale for this acquisition remains questionable when the bank itself has been unwinding its corporate book, the brokerage said.
The stock was quoting at Rs 209.45, down Rs 29.35, or 12.29 percent on the BSE at 0934 hours IST.Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their is own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .