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Centrum Broking
DCB Bank (Buy)
CMP: ₹201.45
Target: ₹240
June quarter loan growth at 13.2 per cent was lower (versus estimated 17.1 per cent) although NII/NIM at ₹305 crore/ 3.9 per cent was in-line. Weaker loan growth led to muted fees; while opex was slightly higher by 2.6 per cent vis-a-vis estimates as first quarter usually sees pay-out related to employee appraisals. Hence PPoP (pre-provision operating profit) came in lower at ₹170 crore (+17.8 per cent y-o-y). Slippages came in higher at ₹150 crore (est ₹120 crore), driven by mortgages, agriculture and CVs. Spike in slippages and lower loan growth led to higher GNPA/ NNPA of 1.96 per cent/ 0.81 per cent (+12bps / +16 bps q-o-q). Provisions were higher at ₹40.6 crore though ₹8 crore was on account of contingent/ standard asset provisioning. Net profit came in at ₹81,100 crore (+16.8 per cent y-o-y).
Valuation and risks: We have lowered our loan growth estimates and raised provisons which may negatively impact the FY21E ABV by 4.7 per cent. Fundamentally we like DCB and hence maintain a multiple of 2.2x FY21E ABV but revise our target price to ₹240 from ₹250.
Risks to our call include lower loan growth and stress in retail/SME loans.
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