Maintain: ADD on DCB Bank - A mixed bag - HDFC Securities

Ms. Darpin Shah, Institutional Research Analyst, HDFC Securities.

DCBB's 1QFY21 print was in line. The QoQ de-growth in deposits was underwhelming, but DCBB's focus on improving deposit granularity was evident and is positive. Asset quality was optically stable (benefited by the standstill classification), and the moratorium book dipped significantly. Our estimates remain mostly unchanged, and we expect earnings to remain under pressure in the near term as provisions are set to rise. However, we remain optimistic about the bank's long-term prospects, and this underpins our ADD recommendation (target price of Rs 103, 0.9xFY22E ABV).

Funding side trends: DCBB's deposits dipped 3.1% QoQ, led by a 3.7% dip in term deposits. While overall deposit traction may seem underwhelming, the bank's deposit granularity has improved. The contribution of Top-20 deposits fell from 9.3% as of FY20 to 8.7% as of 1QFY20, and further to 8.1% as of July 2020. The bank fully repaid outstanding certificates of deposits (Rs 6.1bn in 4QFY20). Its focus on retail term deposits (+43% YoY) over CASA (down 8.6% YoY) was clearly visible. Borrowings registered a sharp growth of 48/15.4%. DCBB's CRAR rose 16bps QoQ to 17.9%, aided by a reduction in RWAs. We watch for trends on deposit growth and granularity.

Asset quality and moratorium trends: GNPAs dipped 1.5% QoQ to Rs 6.22bn (2.4%), and slippages were minuscule at 13bps (however, this was aided by the standstill classification). Further, DCBB saw a sharp rise in its restructured book, which now stands at 1.87%. CVs, mortgages, and MSME saw a sharp QoQ rise in restructuring. The proportion of the book under moratorium fell to 26% from 60% in April 2020, and collection efficiency in July improved to 59%. The bank classifies accounts which have not paid a single instalment as under moratorium. Further, the quantum of delinquent accounts (SMA) under moratorium dipped from Rs 19.1bn to Rs 5.1bn. We believe that DCBB's performance on these fronts was par for the course. Nevertheless, we believe that the bank is likely to see a rise in stress, and we factor in slippages of ~4% over FY21E.

Provisioning: Non-tax provisions fell 29.2% QoQ to Rs 837mn but remained elevated (~2x YoY). NPA provisions were 6.1% higher YoY, but 22.2% lower QoQ. The bank made COVID-19 related provisions of Rs 320mn, taking the total stock of such provisions to Rs 950mn (38bps of loans). It carries floating provisions of Rs 1bn (40bps) and Rs 1.17bn of standard asset provisions (47bps). We believe the bank will see a rise in provisions, as COVID-19 related stress manifests as slippages. Consequently, we have kept our provision estimates mostly unchanged at 1.33% over FY21-22E.

Shares of DCB Bank Limited was last trading in BSE at Rs.82.95 as compared to the previous close of Rs. 82.5. The total number of shares traded during the day was 439956 in over 1308 trades.

The stock hit an intraday high of Rs. 83.55 and intraday low of 82.5. The net turnover during the day was Rs. 36653892.

Source : Equity Bulls

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