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MOSL: DCB BANK (Neutral)-Operationally in line, opex remains the key earnings lever

DCB Bank: Operationally in line, opex remains the key earnings lever

(DCBB IN, Mkt Cap USD0.8b, CMP INR181, TP INR175, 4% Downside, Neutral)

 

• DCBB’s PAT grew 51% YoY to INR861m (our estimate: INR762m) in 3QFY19, driven by higher other income and moderation in opex. PPoP growth of 42% YoY exceeded our estimate of +28%, largely due to a pick-up in other income (26% YoY) on the back of treasury gains of INR112m as core fee income grew by a modest 5% YoY. NIM was flat QoQ at 3.83%. For 9MFY19, PPoP grew 20% YoY, while PAT rose 26% YoY to INR2.3b (v/s INR1.8b in 9MFY18).
• Opex growth moderated to 5.6% YoY to INR2.1b, aided by slower branch addition and improved productivity. C/I ratio, thus, declined 366bp QoQ to 55%. Provisions came in at INR401m (+17% YoY; in-line).
• Loan book grew by 23.1%/3.7% YoY/QoQ (v/s +26.9%/3.9% in 2QFY19) to INR228.9b, primarily led by AIB (+38%), MSME (+23%) and Corporate (+9%). Other segments like CV (+72%), Gold (+23%) and Construction finance (+23%) also showed strong traction, while Mortgages grew marginally slower at 17% YoY. Deposits grew 29%/5% YoY/QoQ to INR275.1b, with retail term deposits plus CASA forming ~77% of total deposits.
• Slippages increased to INR1.1b (2.5% v/s 2.2% in 2Q) as the bank reported a fraud amounting to INR124.4m (of which INR28.7m is pending to be amortized over subsequent quarters). Further, moderation in recoveries and upgrades at INR630m led to an 8.6% QoQ increase in GNPA to INR4.4b. NNPA increased 5.3% QoQ to INR1.6b, while the bank shored up its calculated PCR to 63.3% (62.1% in 2Q). GNPA/NNPA ratio increased 8bp/1bp QoQ to 1.92%/0.71%. As on 3QFY19, net restructured advances stood at INR320m, while SR book was at INR483m.