Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities.
DCB Bank (Q4FY20): Attractive amidst visible headwinds. Maintain ADD
(TP Rs 100, CMP Rs 60, MCap Rs 19bn)
DCBB's 4QFY20 performance was underwhelming on a/c of the rise in GNPLs despite the standstill classification (albeit partial) benefit. Profit was below estimates, impacted by higher provisions. We've lowered our estimates to factor for higher provisions, slower growth and NIM compression. We like DCBB's conservative lending approach but extrinsic factors will pose significant near term challenges given its significant MSME exposure. We maintain ADD with a TP of Rs 100 (0.9xFY22E ABV).
Deposit traction was muted at 6.8/2.1%, as CASA deposits (21.5%) registered a 4.3/6.1% fall. Term deposits grew 10.3/4.6%. Sequentially, non-retail TDs grew 17.1% (flattish YoY) while retail TDs (75.6% of TDs) grew just 1.2% QoQ (+14% YoY). DCBB's deposit granularity improved as the share of top 20 depositors fell ~275bps YoY to ~9.3%.
Asset quality deterioration: GNPAs rose 14.4% QoQ to Rs 6.32bn (2.46%, +62/31bps) and slippages remain elevated at Rs 1.5bn (2.4% ann.). Performance on this front is disappointing, given the ~24/140bps cushioning impact of the standstill classification of a/cs on GNPLs/ slippages. To its credit, DCBB did not avail the standstill classification benefit on ~Rs 430mn of loans (not incl. above) and made near nil. w/os this qtr. Despite prudent credit filters, we're compelled to increase our slippages estimates to 3.75% in FY21E as extrinsic factors will impact asset quality. Further, a significant portion of the book under moratorium (60%) portends higher stress.
Loan growth slowed further, to 7.5% YoY (flattish QoQ). The sluggishness was broad-based with negligible QoQ growth across most segments. At present, the bank is disbursing some gold, corp and home loans. The management expects a meaningful uptick in disbursals only post 1HFY21E. Given the prolonged disruption to economic activity, we've reduced our growth estimates further to 10.5% over FY21-22E.
COVID-19 related management commentary: ~60% of DCBB's loan book was under moratorium as at Apr-20. The facility was offered on an 'opt-in' basis to most customers. Additional disclosures on the mortgage book were comforting and positively surprising. Borrowers representing DCBB's entire LAP, MSME, CV and part of its corp. book would be eligible under the recently announced MSME package. ~60-70% of DCBB's MSME borrowers have their sole operating a/c with the bank. The bank saw good retail deposit traction (~Rs 8bn) in Apr & May-20. DCBB doesn't intend to raise equity capital in the near term.
Shares of DCB Bank Limited was last trading in BSE at Rs.60.45 as compared to the previous close of Rs. 63.7. The total number of shares traded during the day was 137100 in over 2237 trades.
The stock hit an intraday high of Rs. 65.15 and intraday low of 60.1. The net turnover during the day was Rs. 8450020.