Maintain ADD on DCB Bank - Improvement across parameters - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

The better-than-expected operating performance led to an earnings beat, despite higher-than-expected provisions. Even as overall deposits de-grew, the bank's focus on improving deposit granularity was evident-a positive. In the near term, growth is likely to be muted, and the bank is likely to focus on relatively less risky segments. We continue to build elevated GNPAs and provisions, despite the significant improvement in collection efficiency. Our estimates remain mostly unchanged. Attractive valuations and the bank's conservative approach to lending drive our positive stance. We maintain ADD with a target price of Rs 123.

Funding side trends: While deposits dipped sequentially for the second consecutive quarter (-3.1% in 1Q and -2.2% in 2Q), the bank made progress on the deposit granularity front. The contribution of the Top 20 depositors fell from 9.3% in FY20 to 8.7% in 1QFY21 and further to ~7.9% in 2QFY21. This is creditable. Retail term deposits grew ~33% YoY, and overall retail deposits now constitute ~79% of total deposits. Inter-bank deposits declined 24.6/18.5% to ~Rs 28.8bn (~10% of deposits). DCBB's CRAR rose 212/37bps to 18.3% (Tier 1 of 14.2%), aided by a sustained reduction in RWAs.

Asset quality and collection trends: Reported GNPAs dipped 7.7% QoQ to Rs 5.7bn (2.1%). Slippages were just 16bps. However, adjusted for the recent SC order, GNPAs/ slippages would have been 2.39/0.62%. The quantum of overdue accounts in case of which moratorium/ deferment had been granted declined from Rs 19.1bn as of FY20 to Rs 3.1bn as of 26th October 2020. The bank saw an improvement in collection efficiency metrics across segments- LAP (87.5%), home loans (91.3%), CV loans (77.1%). 7.4/5.4/10.8% of LAP/ home loan/ CV customers did not pay a single instalment between April and October. The bank expects to restructure 3-5% of its portfolio. We expect a significant rise in GNPAs in FY21E to 4.1%, despite the bank's conservative lending approach.

Non-tax provisions rose 161.4/35.1% to ~Rs 1.1bn and included additional COVID-19 related provisions of Rs 480mn. This takes DCBB's total stock of such provisions to Rs 1.4bn (57bps of loans). Further, with limited GNPA accretion, calculated PCR to 64.1%. DCBB holds floating provisions and standard asset provisions of Rs 1.5bn (60bps of loans). We like the bank's conservative stance to provisioning. We build in LLPs of 1.21% over FY21-23E.

Shares of DCB Bank Limited was last trading in BSE at Rs.78.45 as compared to the previous close of Rs. 77.1. The total number of shares traded during the day was 129847 in over 1384 trades.

The stock hit an intraday high of Rs. 79.8 and intraday low of 78. The net turnover during the day was Rs. 10251412.

Source : Equity Bulls

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