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MOSL : DCB BANK: Weak operating performance; loan growth seeing a recovery

.  DCB BANK: Weak operating performance; loan growth seeing a recovery

(DCBB IN, Mkt Cap USD0.3b, CMP INR89, TP INR90, 1% Upside, Neutral)

Restructured portfolio remains elevated ~6.1% of loans

• DCBB reported a weak operating performance, led by miss on both NII/PPOP, while PAT came in healthy at INR970m (up 188% YoY; 6% beat) on the back of lower provisions. NIM moderated sharply by 32bp QoQ to 3.61%. On the business front, advances/deposits grew by ~18%/15% YoY.
• Slippages increased sharply to INR5.7b (v/s INR3.8b in 4QFY22). However, healthy upgrades resulted in an improvement in GNPA/NNPA ratio. The outstanding restructured book remains elevated at INR18.2b (6.1% of loans). Collection efficiency remained steady within Home loans and LAP, but continued to be lower in the CV portfolio.
• We remain watchful of asset quality due to a higher restructuring book and estimate RoA/RoE at 1%/12.7% in FY24. We maintain our Neutral rating.

 

Lower provisions drive earnings; NIM contracts by 32bp QoQ

• PAT grew 188% YoY to INR970m in 1QFY23 (6% beat), supported by lower provisions (down 78%). NII grew by ~21% YoY, but fell 2% QoQ to INR3.7b, resulting in a 32bp QoQ contraction in margin to 3.61%.
• Other income declined by 24% YoY to INR924m, primarily weighed by lower treasury gains. Fee income grew strongly at 37% YoY to INR648m. OPEX grew by 32% YoY (12% miss) as the bank continues to hire employees and make investments in the business. PPOP declined by 18% YoY (24% miss).
• On the business front, the loan book grew 18% YoY and 2.5% QoQ supported by healthy disbursements across mortgages. The share of the Corporate book was stable at 10%. Deposits grew 15% YoY, led by a 51% growth in CASA deposits. The CASA mix grew 182bp QoQ to 28.6%.
• GNPA/NNPA ratio declined by 11bp/15bp QoQ to 4.21%/1.82%, even as slippages increased sharply to INR5.7b (~9% annualized). This was supported by healthy recoveries and upgrades of INR5.7b. PCR improved to 57.8% (~69% including TWO). The outstanding restructured book stands elevated at INR18.2b (6.1% of loans).
• Collection efficiency remained steady within Home loans and LAP, but continued to be lower in the CV portfolio. Collection efficiency (including the delinquent and restructured book) in Home/Business/CV loans stood at 98.4%/97%/88.6% in Jun’22.