DCB Bank rises 8%; Kotak upgrades to add, expects 15-16% RoE

Moneycontrol Bureau

Kotak has upgraded DCB Bank to add from sell with unchanged target price of Rs 100 as it expects 15-16 percent return on equity in the long term. The stock rallied nearly 8 percent intraday amid high volumes.

According to its note, any further downside appears to be limited from current levels, given better-than-expected performance on costs and growth since announcing the new branch expansion strategy. The stock declined 30 percent in past six months.The private sector lender's profit in January-March quarter increased 10.4 percent year-on-year to Rs 69.5 crore, driven by net interest income and other income but higher provisions limited growth. Net interest income grew by 30 percent to Rs 168.69 crore.Advances grew 23 percent YoY, driven by mortgages (25 percent YoY), agriculture loans (37 percent YoY) and commercial vehicle/commercial equipment (96 percent YoY).Kotak expects overall loan growth to remain above the industry average, closer to 25 percent YoY.Total deposits grew 18 percent YoY on back of 19 percent YoY growth in retail deposits. Growth in retail deposit has slowed from 25-30 percent YoY growth range about year ago. CASA growth was 18 percent YoY with CASA ratio at 23 percent (unchanged QoQ).Kotak believes CASA ratio may continue to see downward pressure even from current levels.Provisions increased sharply by 30 percent quarter-on-quarter and 90.3 percent year-on-year to Rs 27.25 crore in last quarter of financial year 2015-16 but asset quality improved significantly on sale of bad loans.

Gross non-performing assets (as a percentage of gross advances) in Q4FY16 declined to 1.51 percent from 1.98 percent in Q3FY16 and 1.76 percent in Q4FY15. Net NPA also slipped to 0.75 percent from 1.12 percent and 1.01 percent in same period.