MOSL: DCB BANK (Neutral)-PPoP in line; higher provisions drive earnings miss
DCB Bank: PPoP in line; higher provisions drive earnings miss
(DCBB IN, Mkt Cap USD0.8b, CMP INR182, TP INR200, 10% Upside, Neutral)
Asset quality deteriorates further
- DCBB reported in-line 3QFY20 operating performance, while higher provisions dragged earnings growth (5% miss), led by greater stress in a few business segments. Loan growth moderated further on continued sluggishness in the corporate banking portfolio. However, management has guided for recovery of loan growth starting 2QFY21.
- We cut FY21/FY22 EPS estimates by 8%/6%, as we factor in assumption of higher credit cost and moderate business growth trend. Maintain Neutral.
Business growth moderates; Provision coverage declines further
- DCBB reported PAT of INR967m (5% miss), impacted by lower treasury gains and higher provisions (36% QoQ increase). NII growth slowed to 10% YoY to INR3.2b (in-line) due to moderation in loan growth (11% YoY) while margins improved 4bp QoQ to 3.71%, aided by reduction in cost of deposits.
- Other income declined 1.5% YoY (8% QoQ decline), mainly led by muted treasury gains of INR70m (72% QoQ decline), while core fee growth was also subdued at 5% YoY. Opex grew ~6% YoY to INR2.3b. CI ratio, thus, improved ~110bp QoQ to 54.4%.
- Loan growth moderated further to 11% YoY, primarily led by continued sluggishness in the corporate banking portfolio; it now forms 12% of the book (v/s 15% in 3QFY19). On the other hand, AIB/Mortgages witnessed 23%/14% YoY growth. Deposit growth also moderated 8% YoY to INR297b led by CASA growth of 4% YoY while retail term deposits grew 20% YoY; retail term deposits + CASA formed ~81% of total deposits.
- Fresh slippages remained elevated at INR2.0b (3.6% annualized), which includes one large corporate account from the packaging industry and a higher slippage trend from the commercial vehicle (CV) segment. Overall, GNPA/NNPA ratio rose 6bp/7bp to ~2.2%/1.0%. PCR (calc.) further declined to ~53% (v/s ~55% QoQ).
DCB Bank Limited is a scheduled commercial bank. The Bank's segments include Treasury Operations, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations. The Treasury Operations segment includes all financial markets activities undertaken on behalf of the Bank's customers, trading, maintenance of reserve requirements and resource mobilization from other banks and financial institutions. The Corporate/Wholesale Banking segment includes lending, deposit taking and other services offered to corporate customers. The Retail Banking segment includes lending, deposit taking and other services offered to retail customers. The Other Banking Operations segment includes para banking activities like third party product distribution, merchant banking. The Bank has approximately 200 branches and approximately 410 automated teller machine (ATM) centers.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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