MOSL: DCB BANK (Neutral)-Cost-to-core income ratio at eight-quarter low-asset quality surprises positively

DCB Bank: Cost-to-core income ratio at eight-quarter low; asset quality surprises positively

(DCB IN, Mkt Cap USD0.9b, CMP INR190, TP INR198, 4% Upside, Neutral)

• DCB Bank (DCBB) reported PPoP growth of 23% YoY (12% beat), as the 7% beat on total income was offset by the 4% miss on opex. NII growth of 20% YoY was led by 29% loan growth, while other income rose 33% YoY (39% YoY core fee income growth led to a 16% other income beat). 4QFY18 NII included INR26.2m from interest on tax refund.
• Cost-to-core income ratio stood at 60.1%, the lowest since 4QFY16. Provisions at INR388m (+14% YoY) were in line, while higher-than-expected taxes partly offset the PPoP beat, resulting in PAT (INR642m, +21% YoY) exceeding our estimate by 12%.
• Strong growth in the corporate (+37%), MSME (+29%) and AIB (+29%) loan book led to 8%/27% QoQ/YoY growth in the loan book to INR201b. Other smaller categories such as CV/CE (+93%), Gold (+29%) and Construction finance (+29%) also grew strongly, while Mortgages grew at a slightly slower pace of 20% YoY.
• Slippages were controlled at INR814m (2.1%), led by controlled slippages in MSME and AIB books. Healthy recoveries and upgrades at INR667m led to a 4% QoQ increase in GNPA to INR3.7b. However, the bank shored up its calculated PCR to 60.2% (54.4% in 3Q), leading to a 9% QoQ decline in NNPA to INR1.47b. GNPA/NNPA (%) increased 12bp/-3bp to 1.89%/0.87%