Hold DCB Bank; target of Rs 120: ICICI Direct

Post a disappointing Q1FY17performance, asset quality was better with sequential net addition in GNPA at Rs 24.1 crore, compared to Rs 33.9 crore in Q1FY17. Consequently, GNPA increased to Rs 255.4 crore (Rs 231.3 crore in Q1FY17) while GNPA ratio increased marginally by 3 bps QoQ at 1.75%, due to an increase in asset base DCB bank reported a bottomline of Rs 48.5 crore (Rs 36.9 crore in Q2FY17), marginally lower than our estimate of Rs 51.2 crore, led by higher provision during the quarter at Rs 26.5 crore. NII growth remained healthy at 26.9% YoY to Rs 190.3 crore, led by higher credit growth during the quarter. After negative YoY growth seen in Q1FY17 due to one-time treasury gain, other income trajectory came in healthy at 26.5% YoY to Rs 61.6 crore, marginally higher than our estimate at Rs 60 crore for the quarter Gross credit growth continued to remain above system growth at ~Rs 14436 crore, up 29.1% YoY, higher than our estimate of 24% growth Opex continued to be a tad higher than previous run rate at Rs 151.1 crore. Cost-to-income ratio remained elevated at 60% comparable on a QoQ and YoY basis.  

The strategy to expand the bank’s reach at an aggressive pace doubling branch count to 300+ by December 2017, formulated in FY16E, is expected to keep return ratios suppressed in the medium term. We largely maintain our estimate and expect PAT CAGR at 15% to Rs 254.9 crore in FY17-18E. In addition, RoA is expected at 1% in FY17-18E. However, we revise our target price upwards to Rs 120 from Rs 98 earlier as we assign higher multiple of 1.7x FY18E ABV. We maintain our HOLD recommendation on the stock.  For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.