Hold DCB Bank; target of Rs 170: ICICI Direct

ICICI Direct's research report on DCB Bank

DCB Bank reported a mixed set of numbers. NIM came in at 3.9% (lowest in last four quarters). It was impacted by yield pressure in corporate & mortgage portfolio and also owing to a rise in slippages to Rs 107 crore in Q1FY19 vs. earlier trajectory of ~Rs 80 crore GNPA ratio increased to 1.86% vs. 1.79% QoQ while NNPA ratio was flat at 0.72%. PCR was at 76.1% vs. 75.7% in Q4FY18. Higher slippages came as a negative surprise. Loans continued to increase at a strong pace of 31% YoY to Rs 21243 crore mainly led by corporate, SME & mortgage book. Deposits also rose 31% YoY to Rs 25032 crore with CASA at 24.6% NII growth came in lower than estimate at 17% YoY to Rs 273 crore (I-direct estimate: Rs 278 crore). This was largely due to lower-than-expected margins as mentioned above. Operating profit came in line at ~Rs 141 crore owing to heathy other income traction Cost-to-income ratio was at ~60% The bank reported bottomline traction of 6.6% YoY to Rs 69.5 crore.

Outlook

DCB Bank reported a healthy performance in terms of growth & asset quality in the past few quarters. However, in Q1FY19, margins & asset quality witnessed pressure. Thus, the performance on these two major parameters would need to tracked closely ahead. Further, positive results from the aggressive branch expansion in the last two years (from 198 to 323 now) in terms of a decline in cost-to-income ratio from current ~60% would need to be seen ahead. We revise our target price lower to Rs 170 (Rs 215 earlier), valuing DCB Bank at 1.7x FY20E ABV. We recommend HOLD rating vs. BUY earlier on the stock.

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