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DCB Bank

Sector: Banks/Mid Cap


Earnings Update 4QFY15

April 16, 2015

Sensex
28,780

Nifty
8,697

Price: INR 121

Target Price: INR 142

OUTPERFORMER

Background: DCB Bank Limited (formerly Development Credit Bank Limited) is the smallest listed private sector lender with a total asset base of INR
161.3 as of 4QFY15. DCB has a deposit base of INR 126bn and advances of INR 104.6bn at the end 4QFY15, making it the smallest bank in the
listed private sector space, including both new and old generation private sector banks. Promoter group the Aga Khan Fund for Economic
Development (AKFED) & Platinum Jubilee Investments holds ~16.3% stake. DCB services entails, corporate banking - 23%, SME -13%, Agriculture
15%, Mortgages 43%. As on 4QFY15, the bank had a network of 154 branches, with ~43% of branches in the western region.
52 Week High/Low

INR 127/60

Bloomberg / Reuters

Above par performance; reiterate Outperformer

DEVB IN / DCBA.BO

Equity (shares in mn)

DCBs advances grew (28.7%YoY, 10.3%QoQ) to INR 104.6bn in the 4QFY15; driven by
higher growth in Agri credit (37.7%YoY) Mortgages (45.5%YoY, 10.3%QoQ) and Corporate
banking (13.7%YoY, 5.7%QoQ). However, SME segment witnessed contraction (4.5%YoY,
2.4%QoQ). Subsequently, its share declined 300bps YoY to 13%.

282.0

Mkt. Cap in bn

INR 33.9/ $ 0.6

Avg. Daily Vol. (000)

1544.9

Avg. Daily Vol. (mn)

INR 186.9/$ 3.0

Shareholding

Mar 14

Dec 14

Mar 15

Promoters (%)

18.46

16.41

16.38

FII (%)

12.31

15.49

14.65

DII (%)

16.59

24.30

23.52

Others (%)

52.64

43.80

45.45

0.00

0.00

0.00

2015A

2016E

2017E

Net Interest Inc

5.08

6.05

7.56

Other Inc

1.65

1.97

2.40

Pre Prov Profit

2.08

3.28

4.60

PAT

1.91

2.03

2.69

EPS

7.21

7.29

9.56

EPS growth (%)

19.2

1.1

31.2

PE

16.6

16.5

12.6

P /BV

2.1

1.9

1.7

Div Yield (%)

0.0

0.1

0.2

ROA (%)

1.3

1.1

1.2

ROE (%)

13.9

12.4

14.1

Tier 1 (%)

14.2

13.1

12.1

CAR (%)

14.9

13.7

12.7

Pledge (% of
promoter holding)

Deposits grew a healthy (22.1%YoY, 6.4%QoQ) to INR 126bn supported by healthy growth
in retail term deposits (32.2%YoY, 4.8%QoQ) and NRI deposits at 36.1%YoY.
CASA ratio decreased 160bps YoY to 23.4% amid soft growth (14.3%YoY, 4.7%QoQ). This
trend is likely to continue in the near term and CASA ratio should moderate to 20%-22%.
However, with DCB adding new branches SA should grow by 25% over the medium term as
and when the new branches mature. Further, DCB plans to open 25-30 branches every
year.
NIM declined marginally (5bps QoQ) to 3.8% in 4QFY15 supported by the benefit of capital
raised in the 2QFY15. Further, yield on funds increased (11bps QoQ). However. Cost of
funds increased (10bps YoY) to 7.78% led by moderation in CASA share of deposits and
increased focus on retail term deposits. Management indicated NIMs are likely to moderate
in the medium term given weakness in MSME segment.

Valuation Summary (INR bn)


Y/E March

Performance %
DCB Bank
Sensex

1M

3M

12M

11.2

43.1

82.4

0.5

9.3

28.1

140

180

120

160
140

100

120

GNPAs at 1.76% rose 3.8%QoQ in absolute terms led by higher slippages (3.5%
annualized). Slippages were mainly led by one large a/c of INR 650mn in the corporate
segment. GNPAs in the SME segment declined 69%YoY as the bank sold SME NPAs worth
INR 443mn to ARC. CV segment witnessed pressure with GNPAs increasing 15.8%QoQ.
However, asset quality in mortgage and personal loan segment continued to remain resilient.
NNPA at 1.0% increased 11.03%QoQ in absolute terms led by stable asset quality.
Operating profit increased 35.5%YoY to INR 0.68bn, supported by strong core performance
(29.7%YoY, 6.4%QoQ). Further non-interest income also grew a healthy 38.2%YoY amidst
higher growth in fee income (20%YoY) and higher recovery (2.5xYoY). Cost/Income
increased decreased 160bpsYoY to 61.4% on the back of slower growth in operating
expenses and higher branch productivity. Consequently, net profit increased (61.1%YoY,
48.2%QoQ) at INR 630mn.
Valuation: The stock trades at 1.7X FY17E P/BV and 12.6X FY17E PE. Healthy business growth,
stable NIM, improving asset quality and steady earnings growth should complement return ratios. We
maintain the target price at INR 142/share, implying a FY17E P/BV of 2.0X. We rate the stock an
OUTPERFORMER.
Risks: Weakness on the asset quality from the SME and Corporate segment.

Results Summary 4QFY15

80

100

Y/E March ( INR mn)

60

80

Net Interest Income

60

40

40

20

20

DCB Bank

Apr-15

Mar-15

Jan-15

Feb-15

Dec-14

Oct-14

Nov-14

Sep-14

Jul-14

Aug-14

Jun-14

Apr-14

0
May-14

Relative Sensex (RHS)

Karthikeyan P +91-44-30007344
karthikeyanp@chola.murugappa.com

4QFY15

4QFY14

YoY growth

3QFY15

1297

1000

29.7%

1219

6.4%

Other Income

463

335

38.2%

480

-3.5%

Pre Provisioning Profit

680

502

35.5%

684

-0.6%

PAT

630

391

61.1%

425

48.2%

Cost / Income (%)

61.4

62.4

59.8

Tax Incidence (%)

(17.2)

NA

15.0

1.8

1.7

1.9

Net NPA (%)

1.00

0.9

1.00

Prov Coverage ratio (%)

74.7

80.5

77.07

CAR (%)

14.9

13.7

14.4

Gross NPA (%)

QoQ growth

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