DCB Bank has posted mixed set of numbers overall for Q3FY21 with stable margins and controlled opex. However, asset quality has weakened, with increase in restructuring guidance and elevated credit cost expected. For the bank, headline asset quality numbers looked sanguine, as GNPA and NNPA ratio declined from 2.27% and 0.83% to 1.96% and 0.59% QoQ, respectively. This was due to standstill asset classification norms. On a proforma basis, GNPA and NNPA ratio increased 131 bps and 100 bps QoQ to 3.70% and 1.92%, respectively. The bank has restructured loans worth Rs. 687 crore (~2.7% of loans) and further expects ~5% of loans to come-up for restructuring. During the quarter, the bank has made provisions worth Rs. 86 crore, towards Covid related stress. As a result, it now holds provisions worth Rs. 229 crore, towards the same. In addition to this, the bank has floating provisions worth Rs. 106 crore. The bank overall has provision buffer of ~2% of net advances.
Valuation & Outlook
We expect business growth to gain momentum gradually especially driven by retail and SME. However, on the asset quality front, the road to recovery could be bit elongated. Increasing quantum of restructuring and elevated credit cost are likely to keep bottomline growth subdued in the near term. Improving trend in collection efficiencies and reduction in number of customers not paying single EMI bode well. Thus, on the back of a gradual pick-up in return ratios and ambiguity on asset quality, we downgrade our rating on the stock from BUY to HOLD with a revised target price of Rs. 130/share (Rs. 135 earlier), valuing the business at ~1x FY23E ABV.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_DCB_Q3FY21.pdf
Shares of DCB Bank Limited was last trading in BSE at Rs.108.95 as compared to the previous close of Rs. 114.4. The total number of shares traded during the day was 102838 in over 2409 trades.
The stock hit an intraday high of Rs. 114.65 and intraday low of 108.45. The net turnover during the day was Rs. 11440457.