DCB Bank - FY21 RoA at 0.9% summarises its business resiliency - ICICI Securities

DCB Bank's (DCB) Q4FY21 financial performance was impacted by few one-offs like A) derecognised interest to the tune of Rs0.4bn towards NPA and provision of Rs0.1bn towards interest on interest payable to eligible customers and B) PSLC-related expense of Rs0.16bn. Notably, it remains committed to building a granular retail liability as reflected in strong retail TD growth of 19% YoY in FY21 and top-20 deposit share falling to 6.9% in March'21 from 12% in Mar'19. Collections continued to trend well reaching ~95-96% in mortgage portfolio and non-paying customer pool falling to sub-1% as of March'21; however, resurgence of covid cases may impact collections in near term. Taking cognisance of the second wave, it continued to carry contingency provision of Rs1.24bn as of March'21, over and above Rs1.4bn it created towards restructured assets. Its exit RoA / RoE of 0.8% / 9% in Q4FY21, despite few one-offs and elevated credit cost of 1.6% (annualised), speaks for its business and customer resiliency. Maintain BUY. Key risks: 1) Stress exceeding anticipated levels and 2) delay in loan growth recovery.

- Full-year slippages in FY21 at Rs6.8bn, flat YoY, speaks for its superior asset quality management. While fresh slippages in Q4FY21 appear elevated at Rs6.7bn, more relevant metric, FY21 full-year slippages at similar level to that of FY20 at Rs6.8bn speaks for its business resiliency and superior asset quality management. Total restructured portfolio stands at Rs9.7bn (~3.7% of loans) while ECLGS disbursements stand at Rs9.2bn (~3.5 of loans) against which it carries provision of Rs2.9bn (~1.1% of loans). Reported GNPA ratio marginally increased to 4.1%, while NNPA increases to 2.3%. Collections in LAP and home loans improved to 95% and 97%, respectively, with non-paying customer pool at 0.9-1.4%.

- Granularisation of balance sheet continued despite operational challenges. Retail TD growth at 19% YoY in FY21 & top-20 deposit share at 6.9% in March'21 vs 12% in Mar'19 and top 20 exposure of bank at 5.6% as on March'21, one of the lowest in the industry & 85% of advances is with ticket size of Rs30mn & below, speaks for management's successful execution of granularisation strategy. DCB is gradually getting back to rebuilding new business momentum once the second covid wave weakens.

- Cost rationalisation to continue. Management highlighted that cost ratio at current level is not sustainable and is likely to increase with pick-up in business. However, over the medium term (next 18-24 months), it plans to maintain cost/asset ratio at 2.2%. With underlying margins likely to remain at the current level of ~3.75%, the desired steady-state RoA at 1.1 / 1.2% would be largely driven by operating leverage and normalised credit cost going forward.

- Earnings revision. Factoring in the second wave led asset quality uncertainty, we trim our earnings estimates marginally for FY22E and FY23E by 3% and 5%, respectively by increasing our credit cost assumptions.

Shares of DCB Bank Limited was last trading in BSE at Rs.90.75 as compared to the previous close of Rs. 90.2. The total number of shares traded during the day was 58810 in over 446 trades.

The stock hit an intraday high of Rs. 91.75 and intraday low of 90.1. The net turnover during the day was Rs. 5347931.

Source : Equity Bulls

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