Edelweiss's research report on DCB BankDCB Bank’s (DCB) Q3FY16 PAT of INR412mn (down 3% YoY) was marginally lower than our estimate following lower other income. Key highlights were: 1) revenue momentum sustained with NII moving up >30% YoY, above-industry loan growth and NIMs improvement; 2) slippages were controlled at 2.0% (2.4% in Q2FY16) led by SME, mortgage and agri segments; and 3) cost/income ratio continues to be elevated at ~60%. While DCB has diluted its earlier stance of up-fronting its branch expansion plans (150 branches will be added over next 24 months versus earlier target in 1 year), the dent in return ratios cannot be overlooked given existing modest ratios. At 1.1x FY18E P/ABV, the stock is fairly priced given near-term subdued earnings. As we roll forward to FY18 estimates, we maintain ‘REDUCE’ with TP of INR86. DCB has posted remarkable turnaround, but up-fronting of cost structure will strain return ratios and the breakeven of these costs will hold key. While we are confident about strong management, execution risks remain high owing to many variables. We maintain ‘REDUCE/SU’. 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.
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