DCB Bank - 3QFY17 Result Update -BUY- Strong Core Earnings, Stable Asset Quality - Reliance Securities

DCB Bank has topped the market expectations in 3QFY17 led by robust growth in NII and other income along with 385bps qoq growth in CASA ratio. It has reported substantially improved performance on operating front with its NII rising by 30.5% yoy & 10.1% qoq to Rs2.09bn led by robust growth in loan book (24.3% yoy & 1.0% qoq) and stable growth in NIMs (3.95%). Despite higher provisioning of Rs305mn (+45.7% yoy & +15.3% qoq), its PAT grew by 24.5% yoy & 5.8% qoq to Rs513mn. The Bank showed greater resilience on asset quality front with its gross and net NPA remaining within the Management's comfort zone. We expect the Bank will be one of the major beneficiaries of demonetization as it has strong presence in segments where informal financing is more prevalent. We reiterate our BUY recommendation on the stock with unrevised Target Price of Rs144 based on 1.9x FY18E Adjusted book value.

Management Commentary

CASA ratio improved by 385bps qoq to 25.9% in 3QFY17 vs. 22% in 2QFY17 led by the demonetization drive. Most of its deposits came in small-ticket saving deposits and management expects major chunk to remain with the Bank in medium to long-term.

The Bank witnessed substantially higher repayments in SME/MSME segments in Nov'16, but the situation improved gradually in Dec'16. The Bank does not expect any major impact of demonetization and GST rollout on performance of these SME/MSME business units in the medium-term.

The Bank opened 20 branches in 3QFY17 and mulls opening another 60 branches in next 9 months.

Despite signification change in business environment the bank management expect to adhere to all guidance given earlier for FY17E & FY18E.

Outlook & Valuation

The Management focuses on growing loan book in low-ticket retail, SME & AIB segments coupled with increasing footprint both on physical and digital front. Though this aggressive expansion of footprints will marginally impact its return ratios in the near-term, it would bring forth substantial positive benefits in the long-term. Further, Management focuses on increasing efficiency of existing network to improve C/I ratio in the long-term, which will lead to sustained earnings growth. We expect healthy traction in earnings on the back of robust loan growth, moderate credit cost and stable margins. We reiterate our BUY recommendation on the stock with unrevised Target Price of Rs144 based on 1.9x FY18E Adjusted book value.

Shares of DCB Bank Limited was last trading in BSE at Rs.117.75 as compared to the previous close of Rs. 119.1. The total number of shares traded during the day was 134443 in over 1760 trades.

The stock hit an intraday high of Rs. 121 and intraday low of 117. The net turnover during the day was Rs. 16060277.

Source : Equity Bulls

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