RESULTS REVIEW 3QFY19 17 JAN 2019 DCB Bank Bank - 3QFY19... · RESULTS REVIEW 3QFY19 17 JAN 2019 DCB Bank BUY HDFC securities Institutional Research is also available on Bloomberg

RESULTS REVIEW 3QFY19 17 JAN 2019

DCB Bank

BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

Same oldDCBB’s strong core operating performance was driven by an uptick in NII (+17% YoY), higher other income (rise in treasury gains and misc. inc) and controlled opex (6/2%). This led to a continued improvement in operating efficiency (core C-I ratio down 250bps to ~56.9%).

Contrary to our expectation, NIMs were sequentially stable at 3.83%. We believe NIMs have bottomed out at this point and will increase as a result of lower competition in the mortgage segment and the recent MCLR reset. However, asset quality deterioration (GNPAs: +9% QoQ to 1.92%) and a sub 25% loan growth (+23%) were marginally disappointing.

While operating efficiency, evidenced by a lower C-I ratio, improved sequentially, its sustainability will be a key monitorable. Further, oplev will be instrumental in driving RoAA improvement. We have marginally tweaked our estimates to factor in higher slippages and lower loan growth. Our assumptions on opex (19% CAGR) and NIMs (3.65%) over FY19-21E

provide a cushion to earnings. Maintain BUY with a TP of 213 (2x Dec-20E ABV of Rs 106).

Highlights of the Quarter Slippages jumped to ~Rs 1.1bn (2.04%) incl. a fraud of

~Rs 124mn. With lower reductions (-10% QoQ), GNPAs jumped ~9% QoQ to Rs 4.45bn (1.9%). The 8% sequential increase in mortgage NPAs was disappointing. We marginally increased our slippage assumptions from 1.5% to 1.7% over FY19-21E.

Surprisingly, NIMs were stable QoQ, at 3.83%. Lower competition from NBFCs and a rise in the MCLR (44bps since Aug-18) are expected to cushion NIMs. We have factored in NIMs of ~3.7% over FY18-21E.

Controlled opex (+6% YoY), healthy NII growth and higher other inc, contributed to oplev improvement. The core C-I ratio improved ~250bps to ~56.9%. Sustained improvement in oplev is essential for RoAA improvement henceforth. We have factored in a C-I ratio 57% over FY18-21E.

Near-term outlook: With a marginal dip in loan growth and deterioration in asset quality, the stock should remain range bound.

FINANCIAL SUMMARY (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY18 QoQ (%) FY17 FY18 FY19E FY20E FY21E

Net Interest Income 2,936 2,505 17.2% 2,818 4.2% 7,971 9,954 11,792 14,183 17,171 PPOP 1,738 1,225 41.8% 1,461 18.9% 4,182 5,250 6,434 7,823 9,646 PAT 861 570 51.0% 734 17.2% 1,997 2,453 3,091 3,829 4,898 EPS (Rs) 2.8 1.9 50.3% 2.4 17.2% 7.0 8.0 10.0 12.4 15.8 RoAE (%) 10.0 9.8 10.5 11.8 13.5 RoAA (%)

0.93 0.90 0.93 0.95 1.00

Adj. BVPS (Rs)

63.9 78.2 85.4 96.0 109.7 P/ABV (x)

2.84 2.32 2.12 1.89 1.65

P/E (x)

25.9 22.8 18.1 14.6 11.5 Source: DCB Bank, HDFC sec Inst Research

INDUSTRY BANKS

CMP (as on 16 Jan 2019) Rs 181

Target Price Rs 213

Nifty 10,890

Sense 36,321

KEY STOCK DATA

Bloomberg DCBB IN

No. of Shares (mn) 309

Map (Rs bn) / ($ mn) 56/788

6m avgas traded value (Rs mn) 290

STOCK PERFORMANCE (%)

52 Week high / low Rs 205/140

3M 6M 12M

Absolute (%) 8.0 12.1 (6.4)

Relative (%) 4.7 12.1 (10.9)

SHAREHOLDING PATTERN (%)

Promoters 14.94

FIs & Local MFs 25.38

FPIs 23.64

Public & Others 36.04

Source : BSE

Darpin Shah [email protected] +91-22-6171-7328

DCB BANK : RESULTS REVIEW 3QFY19

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Five Quarters At A Glance Rs mn 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 YoY Growth QoQ Growth

Net Interest Income 2,504.6 2,637.0 2,729.7 2,818.4 2,936.1 17.2% 4.2%

Non-interest Income 749.4 848.6 828.3 734.9 944.8 26.1% 28.6%

Treasury Income 55.0 42.0 153.0 31.0 112.0 103.6% 261.3%

Operating Income 3,254.0 3,485.6 3,558.0 3,553.3 3,880.9 19.3% 9.2%

Operating Expenses 2,028.6 2,069.8 2,143.9 2,092.1 2,143.1 5.6% 2.4%

Pre Provision Profits 1,225.4 1,415.8 1,414.1 1,461.2 1,737.8 41.8% 18.9%

Other Provisions 342.5 388.1 332.3 319.0 401.4 17.2% 25.8%

PBT 882.9 1,027.7 1,081.8 1,142.2 1,336.4 51.4% 17.0%

Provision For Tax 312.8 385.6 386.8 407.8 475.4 52.0% 16.6%

PAT 570.1 642.1 695.0 734.4 861.0 51.0% 17.2%

Balance Sheet Items/Ratios

Deposits Rs bn 213.0 240.1 250.3 261.7 275.1 29.2% 5.1%

CASA Deposits Rs bn 54.7 58.4 61.7 63.6 66.7 22.0% 4.9%

Advances Rs bn 186.0 203.4 212.4 220.7 228.9 23.1% 3.7%

CD Ratio (%) 87.3 84.7 84.9 84.3 83.2 -411 bps -113 bps

CAR (%) 15.8 16.5 15.6 15.6 15.5 -32 bps -12 bps

Tier I (%) 12.5 12.7 12.0 12.0 11.9 -61 bps -9 bps

Profitability

Yield On Advances (%) 11.25 11.41 11.21 11.07 11.26 1 bps 19 bps

Cost Of Deposits (%) 6.42 6.51 6.58 6.59 6.74 32 bps 15 bps

NIM (%) 4.12 4.16 3.90 3.83 3.83 -29 bps 0 bps

Cost-Income Ratio (%) 62.3 59.4 60.3 58.9 55.2 -712 bps -366 bps

Tax Rate (%) 35.4 37.5 35.8 35.7 35.6 14 bps -13 bps

Asset quality

Gross NPA (Rs mn) 3,545 3,690 4,006 4,100 4,451 25.6% 8.6%

Net NPA (Rs mn) 1,615 1,467 1,539 1,553 1,634 1.2% 5.3%

Gross NPAs (%) 1.89 1.79 1.86 1.84 1.92 3 bps 8 bps

Net NPAs (%) 0.87 0.72 0.72 0.70 0.71 -16 bps 1 bps

Delinquency Ratio (%) 2.31 1.67 2.07 1.81 2.04 -27 bps 23 bps

Coverage Ratio Calc. (%) 54.45 60.24 61.58 62.13 63.28 884 bps 115 bps

Coverage Ratio Reported (%) 73.36 75.72 76.09 76.82 76.99 363 bps 17 bps

Restructured Book (%) 0.13 0.17 0.15 0.16 0.14 1 bps -2 bps

Change In Estimates

(Rs mn) FY19E FY20E FY21E

Old New Change Old New Change Old New Change

NII 12,090 11,792 -2.5% 14566 14,183 -2.6% 17341 17,171 -1.0%

PPOP 6,600 6,434 -2.5% 8148 7,823 -4.0% 9644 9,646 0.0%

PAT 3,103 3,091 -0.4% 3965 3,829 -3.4% 4884 4,898 0.3%

Adj. BVPS (Rs) 86.8 85.4 -1.6% 97.7 96.0 -1.7% 111 109.7 -1.2%

Core earnings were in line with estimates led by stable NIMs and 23/4% growth in advances

Driven by treasury gains (2x/3.6x YoY/QoQ) and fee growth of ~6% QoQ

LLP Rs 350mn i.e. 62bps ann., std assets Rs 20mn, MTM reversal Rs 20mn and floating provisions Rs 55mn

SA grew ~27% YoY; Overall Retail deposits form ~77% of total deposits

Led by better pricing power in the mortgage book

Led by higher slippages (+18%) and lower reductions (down 10% QoQ)

Segment wise GNPAs: SME (1.47%), Corp (2.27%), Mortgages (+1.75%) and Agri (2.34%)

Led by Agri (38%), SME (+23%) and CV (+72%)


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Growth dips marginallly

DCBB’s loan growth moderated marginally to ~23/4% YoY/QoQ. The growth was broad based (except corp. loans) with Agri growth of ~38/4% YoY/QoQ (Rs 43.5bn, 19% of loans) and SME loan growth of 23/4% (Rs 27.5bn, 12% of loans). On a smaller base, CV loans grew ~72/4% YoY /QoQ to form ~7% of loans.

Mortgages grew at a slower pace (~17/4%) and formed 40% of loans. With receding competition from NBFCs in the mortgage sector, the mgt expects better pricing power and higher growth (in part due to lower prepayments).

Corp book growth (9% YoY; 15% of loans) remained muted after several qtrs of robust growth. This in sync with the mgt's guidance for maintaining corp loans at ~15% of the book.

We maintain our assumption of 24% loan growth CAGR over FY18-21E.

Deposit growth (~29/5% YoY/QoQ) was healthy and driven by robust growth in term deposits at ~35/10%. While CASA growth at ~22% YoY was modest, the robust SA accretion (+27% YoY) was promising. As branches mature, we expect the CASA ratio to improve.

Marginal Dip in Loan Growth at ~23/4% YoY/QoQ Loan Mix: Sequentially stable

Source: DCB Bank, HDFC sec Inst Research Source: DCB Bank, HDFC sec Inst Research

Book growth dipped marginally to ~23/4% YoY/QoQ Agri Loan growth was robust at ~38/4% YoY/QoQ CV growth at ~72/4% YoY/QoQ sustained (on a smaller base of ~Rs 16bn) The mortgage (retail) book grew at ~17/4% and continued to constitute ~40% of the book The book mix remained sequentially stable SA grew ~27% YoY, CASA ratio was stable QoQ at ~ 24.25%

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Mortgages AIB Corporate SME+MSME Others


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NIMs may have bottomed out Contrary to our expectations, NIMs were sequentially

flat at 3.83%, with a 19bps rise in yields (11.26%) and a 15bps rise in CoD (6.74%).

The mgmt maintained its guidance for NIMs between 3.75-3.85% over the next couple of qtrs.

Given improving pricing power (due to lower competition from NBFCs), MCLR reset (up 44bps since Aug-18) and a higher proportion of floating rate loans, we expect yields to further improve hereon. Thus, in spite of a marginally higher CoD, we expect NIMs to bottom out at this point. We factor in NIMs of 3.65% over FY18-21E.

NII growth increases to ~17/4% YoY/QoQ Reported NIMs: Sequentially Stable

Source: DCB Bank, HDFC sec Inst Research Source: DCB Bank, HDFC sec Inst Research

Non-interest Income: Rises QoQ driven by Treasury Income Rs mn 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

Fees 351.0 361.0 395.0 379.0 422.0 403.0 452.0 519.0 483.0 567.0 629.0 599.0 559.0 594.0

% Loans 1.26 1.23 1.22 1.14 1.17 1.11 1.14 1.28 1.11 1.22 1.24 1.13 1.01 1.04

Treasury & Misc

52.0 45.0 40.0 172.0 116.0 125.0 41.0 287.0 71.0 55.0 42.0 153.0 31.0 112.0

Forex 84.0 66.0 179.5 50.3 78.2 113.1 142.9 51.6 98.8 127.4 177.6 76.3 144.9 238.8

Total 487.0 472.0 614.5 601.3 616.2 641.1 635.9 857.6 652.8 749.4 848.6 828.3 734.9 944.8

(%, YoY) 31.8 (1.6) 32.8 (4.7) 26.5 35.8 3.5 42.6 5.9 16.9 33.4 (3.4) 12.6 26.1

% of total inc. 24.5 22.7 26.7 25.4 24.5 23.4 22.4 26.9 20.8 23.0 24.3 23.3 20.7 24.3

% of Avg. Assets (ann.)

1.17 1.09 1.34 1.24 1.19 1.13 1.07 1.42 1.04 1.13 1.18 1.08 0.92 1.13

Source: DCB Bank

Reported NIMs were sequentially stable at ~3.83% Yields and CoD grew in tandem at 19/15bps sequentially NIMs remained sequentially stable in accordance with previous mgt guidance We have factored in NIMs of 3.65% over FY18-21E Fee income grew ~5/6% YoY/QoQ Treasury income grew ~2x/3.6x YoY/QoQ Forex Income grew ~58/10% YoY/QoQ to ~Rs 57mn Miscellaneous Income grew ~2x YoY/QoQ to ~Rs 182mn led by higher PSLC income

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Oplev improves; Provisions jump

The Core C-I ratio improved ~250bps (after improving ~360bps in 2Q) to ~56.9% while the C-I Ratio was at 55.2% (-370bps QoQ). Controlled opex (+6/2% YoY/QoQ), strong core income growth and higher treasury income during the qtr contributed to a lower C-I ratio.

The flattish other opex (+5% QoQ was largely due to an upward revision in the useful life of PPE in 2Q

resulting in ~Rs 46mn savings in depreciation in 3Q. The impact of this change in a/c estimate will be enduring in nature.

The management aims to improve operating efficiency, thereby achieving a C-I ratio of ~50% and a C-AA ratio of ~2.35%. We believe a daunting task lies ahead in this regard. We have factored in a C-I ratio improvement of 410bps over FY18-21E to ~57.9%.

Core C-I Dips ~250bps QoQ Non Tax Provisions Jump ~26% QoQ

Source: DCB Bank, HDFC Sec Inst Research Source: DCB Bank, HDFC Sec Inst Research

The bank added 3 branches in the qtr The C-I ratio guidance of ~55% was achieved during the qtr and the mgt is confident in its sustainability Staff cost remained sequentially flat at ~Rs 1.1bn while other opex grew ~5% to ~Rs 1bn (-2% YoY) Non tax provisions jumped ~17/26% YoY/ QoQ to ~Rs 400mn (LLP: Rs 350mn, Floating Provisions: Rs 50mn, Std Asset Provisions: Rs 20mn and MTM Reversals: (Rs 20mn) Business/employee increased from ~Rs 71mn to ~Rs77mn QoQ

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Asset quality marginally deteriorates Slippages (Rs1.14bn i.e. 2.04% ann. vs. 1.81%), were

higher QoQ, with visible stress in the Agri and mortgage sectors. Further, sequentially lower reductions (Rs 630mn, down 10%) and write-offs (Rs 166mn) resulted in a ~9% rise in GNPAs to Rs 4.45bn (1.92%)

After positively surprising in 2Q, Mortgage NPAs (Rs 1.6bn i.e. 1.75% of Mortgage loans) jumped ~8% QoQ. The sharp rise in Agri NPAs (Rs 1.02bn, +33% QoQ; 2.34% of agri loans) included a fraud of ~Rs 124mn by a rice mill in Gujarat. SME GNPAs were up

~6% QoQ while Corp GNPAs dipped ~16% QoQ to Rs 779mn.

While calc. coverage improved to 63.3% (+120bps QoQ) NNPAs increased by ~5% QoQ to ~Rs 1.63bn (71bps).

Given the granular loan book (Top 20 Advances 7%>), conservative mgt approach, minimal stressed assets and miniscule restructured book, our thesis remains constructive. We have factored in slippages of ~1.7% over FY18-21E.

Slippages Rise QoQ GNPAs Spike Led By Agri And Mortgage

Source : DCB Bank Source : DCB Bank

Segment-wise GNPAs: Spike in Agri and SME

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CV/CE 74 89 92 111 134 176 200 215 294 283 299 319 294 385

Corp. 919 861 861 861 861 652 859 675 675 840 840 902 930 779

SME 486 522 245 279 367 368 324 316 328 373 307 339 380 403

Mortgages 466 511 464 626 743 669 717 1,002 1,164 1,269 1,392 1,480 1,486 1,606

Others 78 51 24 32 72 90 76 135 136 148 220 232 247 260

Agri 220 315 288 404 377 324 366 510 561 632 632 734 763 1,018

Source: DCB Bank

GNPAs spike sequentially as a result of higher slippages (~Rs 1.14b, 2.04%) and lower recoveries and upgrades (~Rs 630mn) Write-offs dipped marginally QoQ to Rs 166mn Agri GNPAs jumped ~61/33% YoY/QoQ to ~Rs 1bn Mortgage and SME NPAs were up ~8/6% QoQ Corp GNPAs dipped ~16% QoQ to Rs 779mn RWAs were sequentially flat even as the loan book grew ~4% The bank reported a fraud of ~Rs 124mn of which ~Rs 29mn remains has not been provided for during the qtr Reported PCR was sequentially flat at ~77% while Calc PCR improved120bps sequentially to ~ 63%

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Asset Quality Movement: GNPA Rise Led Higher Slippages Rs mn 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

Opening GNPA 2,065 2,244 2,350 1,975 2,314 2,555 2,280 2,543 2,854 3,159 3,546 3,691 4,007 4,101

Slippages 622 551 509 579 501 793 746 887 779 1,038 814 1,074 978 1,147

(%) ann. 2.30 1.92 1.65 1.76 1.44 2.19 1.96 2.21 1.85 2.31 1.67 2.07 1.81 2.04

Reductions 443 445 884 240 260 1,068 483 576 474 651 669 758 884 796

W/O 70 34 348 4 - 349 90 245 1 75 2 78 184 166

Recovery 213 249 426 193 139 641 225 210 212 307 284 248 327 279

Upgrades 160 162 110 43 121 78 168 121 261 269 383 432 373 351

Closing GNPA 2,244 2,350 1,975 2,314 2,555 2,280 2,543 2,854 3,159 3,546 3,691 4,007 4,101 4,452

Source: DCB Bank

RoAA rises to 1.03%

Source: Bank, HDFC sec Inst Research

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NII Other income Opex Other provisons Tax RoAA (RHS)


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P/ABV Band Chart


Peer Set Comparison

BANK Map

(Rs bn) CMP (Rs)

Rating TP

(Rs)

ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

ICICIB # 2,413 375 BUY 428 127 146 169 50.7 14.3 10.0 2.18 1.81 1.47 3.5 10.0 12.3 0.38 1.17 1.40

KMB# 2,294 1,203 BUY 1,415 207 237 273 35.3 27.8 22.6 4.49 3.83 3.25 13.2 14.2 14.9 1.73 1.76 1.74

AXSB 1,731 664 BUY 741 227 269 306 34.7 18.6 14.1 2.93 2.47 2.17 7.5 12.7 14.9 0.68 1.12 1.29

IIB 1,056 1,527 BUY 1,935 411 515 574 32.2 21.2 15.6 3.72 2.96 2.66 12.1 15.2 18.0 1.24 1.46 1.62

RBL 241 574 BUY 638 169 192 220 27.8 20.8 15.6 3.40 2.99 2.62 12.3 14.7 17.3 1.23 1.29 1.34

FB 180 91 NEU 92 57 64 73 16.0 12.0 9.5 1.60 1.42 1.26 8.9 10.9 12.6 0.75 0.84 0.90

CUB 136 186 BUY 236 60 70 82 19.9 16.8 14.3 3.10 2.66 2.28 15.2 15.5 15.7 1.58 1.58 1.55

KVB 73 91 BUY 119 57 64 69 27.1 10.2 8.4 1.60 1.43 1.32 4.3 11.1 12.9 0.39 0.95 1.04

DCBB 56 181 BUY 213 85 96 110 18.1 14.6 11.5 2.12 1.89 1.65 10.5 11.8 13.5 0.93 0.95 1.00

SBIN # 2,705 303 BUY 363 130 167 202 45.9 8.5 5.6 1.50 1.14 0.94 1.8 8.8 12.2 0.11 0.52 0.73

BOB 321 121 NEU 127 103 137 166 16.0 6.7 4.9 1.18 0.88 0.73 4.9 10.8 13.1 0.27 0.58 0.72

AUBANK 194 646 NEU 667 100 131 154 48.9 35.3 24.7 6.44 4.94 4.19 14.3 15.3 17.5 1.64 1.70 1.90

Source: Company, HDFC sec Inst Research, # Adjusted for subsidiaries value

-

0.5

1.0

1.5

2.0

2.5

3.0

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

P/ABV avg +SD -SD

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50.0

100.0

150.0

200.0

250.0

Jan

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Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

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2.5x

2.0x

1.0x

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Income Statement (Rs mn) FY17 FY18 FY19E FY20E FY21E

Interest Earned 20,761 24,130 30,109 37,187 46,072

Interest Expended 12,791 14,176 18,317 23,004 28,900

Net Interest Income 7,971 9,954 11,792 14,183 17,171

Non-interest Income 2,495 3,103 3,485 4,184 5,028

Fee Income (CEB) 1,657 2,192 2,556 3,115 3,868

Treasury Income 454 454 350 450 500

Total Income 10,465 13,057 15,277 18,367 22,200

Total Operating Exp 6,283 7,807 8,843 10,544 12,553

Employee Expense 3,080 3,812 4,480 5,239 6,245

PPOP 4,182 5,250 6,434 7,823 9,646

Provisions & Contingencies 1,115 1,388 1,715 1,977 2,280

Prov. For NPAs (Incl. Std Prov.) 1,082 1,338 1,615 1,882 2,185

PBT 3,067 3,862 4,719 5,847 7,366

Provision for Tax 1,070 1,408 1,628 2,017 2,468

PAT 1,997 2,453 3,091 3,829 4,898


Balance Sheet (Rs mn) FY17 FY18 FY19E FY20E FY21E

SOURCES OF FUNDS

Share Capital 2,869 3,095 3,107 3,107 3,107

Reserves 19,179 24,983 27,730 31,134 35,488

Shareholders' Funds 22,049 28,078 30,838 34,241 38,595

Savings 31,545 40,048 50,060 61,073 75,730

Current 15,347 18,355 20,191 23,220 26,703

Term Deposit 146,000 181,665 221,260 272,923 339,596

Total Deposits 192,892 240,069 291,511 357,215 442,029

Borrowings 12,758 19,267 27,040 32,126 38,233

Other Liabilities 12,765 14,807 15,134 16,383 18,257

Total Liabilities 240,464 302,221 364,523 439,967 537,114

APPLICATION OF FUNDS

Cash & Bank Balance 11,925 23,720 20,626 22,807 27,275

Investments 58,179 62,190 79,377 91,313 108,102

G-Sacs 47,711 49,090 65,590 76,801 92,826

Advances 158,176 203,367 250,589 311,535 386,775

Fixed Assets 4,886 4,940 5,187 5,317 5,450

Other Assets 7,298 8,004 8,745 8,995 9,511

Total Assets 240,464 302,221 364,523 439,967 537,114



Page | 10

Key Ratios FY17 FY18 FY19E FY20E FY21E

VALUATION RATIOS

EPS (Rs) 7.0 8.0 10.0 12.4 15.8

Earnings Growth (%) 2.6 22.9 26.0 23.9 27.9

BVPS (Rs) 77.2 91.1 99.7 110.7 124.7

Adj. BVPS (Rs) 63.9 78.2 85.4 96.0 109.7

DPS (Rs) 0.5 0.8 0.9 1.2 1.5

ROAA (%) 0.93 0.90 0.93 0.95 1.00

ROAE (%) 10.0 9.8 10.5 11.8 13.5

P/E (x) 25.9 22.8 18.1 14.6 11.5

P/ABV (x) 2.84 2.32 2.12 1.89 1.65

P/PPOP (x) 12.4 10.7 8.8 7.2 5.8

Dividend Yield (%) 0.3 0.4 0.5 0.6 0.8

PROFITABILITY

Yield On Advances (%) 11.46 10.73 10.79 10.91 11.03

Yield On Investment (%) 7.75 6.99 7.00 7.00 7.00

Cost Of Deposits (%) 6.89 5.95 6.35 6.54 6.69

Core Spread (%) 4.58 4.78 4.44 4.37 4.33

NIM (%) 3.89 3.85 3.69 3.65 3.62

OPERATING EFFICIENCY

Cost/Avg. Asset Ratio (%) 2.9 2.9 2.7 2.6 2.6

Cost-Income Ratio (Ex. Treasury) 62.8 61.9 59.2 58.8 57.9

BALANCE SHEET STRUCTURE

Loan Growth (%) 22.4 28.6 23.2 24.3 24.2

Deposit Growth (%) 29.2 24.5 21.4 22.5 23.7

C/D Ratio (%) 82.0 84.7 86.0 87.2 87.5

Equity/Assets (%) 9.2 9.3 8.5 7.8 7.2

Equity/Advances (%) 13.9 13.8 12.3 11.0 10.0

CASA (%) 24.3 24.3 24.1 23.6 23.2

Capital Adequacy Ratio (CAR, %) 13.8 16.5 14.7 13.3 12.0

W/w Tier I CAR (%) 11.9 12.7 11.6 10.7 9.9

FY17 FY18 FY19E FY20E FY21E

ASSET QUALITY

Gross NPLs (Rs mn) 2,542 3,690 4,608 5,239 5,866

Net NPLs (Rs mn) 1,244 1,467 1,902 2,037 2,138

Gross NPLs (%) 1.59 1.79 1.81 1.65 1.49

Net NPLs (%) 0.79 0.72 0.76 0.65 0.55

Slippage (%) 1.82% 1.93% 1.90% 1.70% 1.50%

Coverage Ratio (%) 51.1 60.2 58.7 61.1 63.6

Provision/Avg. Loans (%) 0.60 0.71 0.60 0.56 0.52

ROAA TREE

Net Interest Income 3.69% 3.67% 3.54% 3.53% 3.51%

Non-interest Income 1.16% 1.14% 1.05% 1.04% 1.03%

Treasury Income 0.21% 0.17% 0.10% 0.11% 0.10%

Operating Cost 2.91% 2.88% 2.65% 2.62% 2.57%

Provisions 0.52% 0.51% 0.51% 0.49% 0.47%

Provisions For NPAs 0.40% 0.48% 0.41% 0.39% 0.37%

Tax 0.50% 0.52% 0.49% 0.50% 0.51%

ROAA 0.93% 0.90% 0.93% 0.95% 1.00%

Leverage (x) 10.81 10.76 11.82 12.85 13.92

ROAE 10.00% 9.73% 10.96% 12.23% 13.95%



Page | 11

RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target

9-Jan-18 197 BUY 220

18-Jan-18 184 BUY 218

10-Apr-18 172 BUY 205

17-Apr-18 190 BUY 216

23-May-18 185 BUY 216

6-Jul-18 169 BUY 216

16-Jul-18 162 BUY 216

9-Oct-18 143 BUY 210

18-Oct-18 160 BUY 209

8-Jan-19 173 BUY 215

17-Jan-19 181 BUY 213

120

140

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Feb

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Ap

r-1

8

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Jun

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18

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g-1

8

Sep

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Oct

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8

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Jan

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DCB Bank TP


Page | 12

Disclosure: I, Darpin Shah, MBA author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. 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In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, Corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]


Page | 13

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