Hold DCB Bank; target of Rs 85: ICICIDirect

ICICIDirect's research report on DCB BankAsset quality improved with GNPA net addition reported negative (~| 33 crore). GNPA fell in Q4FY16 at | 197.4 crore (| 234.9 crore in Q3FY16) while GNPA ratio improved 47 bps QoQ. NNPA ratio declined 37 bps QoQ to 0.75%. Lower slippages at | 50.9 crore (| 55.1 crore in Q3FY16) coupled with higher recoveries at | 42.6 crore & write-off at | 34.8 crore led to decline in NPA, led by sale to ARC PAT growth was at 10.5% YoY to | 70 crore, higher than our estimate of | 51.5 crore, owing to lower tax expense at | 0.2 crore (Idirect estimate - | 19 crore) during the quarter. Provision expense continued to remain elevated at | 27.3 crore but higher-thanexpected non-interest income offset incremental provision NII growth remained healthy at 30.1% YoY to | 168.7 crore, in line with our estimate, on account of in line credit growth at | 12921 crore, up 23.5% YoY. Other income came in at | 61.5 crore, up 32.8% YoY, higher than our estimate at | 49 crore for the quarter Opex continued to be a tad higher than previous run rate at | 133.1 crore. CI ratio improved YoY, QoQ to 57.8% due to healthy topline. The strategy to expand the bank’s reach at an aggressive pace doubling branch count to 300+ in 24 months, formulated in FY16E, is expected to keep return ratios suppressed in the medium term. We are broadly maintaining PAT estimates for FY17E. RoA is expected at 1% in FY17E. We are introducing FY18E estimates and keeping our target P/ABV multiple unchanged at 1.2x. We revise our target price at | 85/share, thereby maintaining our previous HOLD rating. 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.

Read More