DCB Bank posted moderation in operating performance due to interest reversals on NPA recognition, deterioration in asset quality on proforma basis and tepid business growth. Net interest income was down 7% QoQ, 4% YoY to Rs. 311 crore due to reversal of interest worth Rs. 37 crore due to NPA recognition and Rs. 10 crore towards interest on interest relief. Net interest margin (NIM) dipped from 29 bps sequentially to 3.5% as yields declined due to interest reversal. Other income also fell 13.4% QoQ to Rs. 134 crore owing to a sharp decline in treasury income. Opex jumped 9.5% QoQ as business activity increased. As a result of stunted topline and higher opex, C/I ratio increased 483 bps sequentially to 36.1%. Provisions for the quarter were at Rs. 101 crore while net profit came in at Rs. 78 crore, below our estimate.
Valuation & Outlook
The management has guided for loan growth of ~15-16% and also expects recoveries to increase from Q2 onwards. We believe with ~95% of secured nature of book and ability to use SARFAESI now higher quantum of recoveries is possible. In turn, this may aid asset quality improvement. Near term uncertainty due to partial lockdowns and early indicators like a drop in collection point towards rising stress. However, we believe low valuations factor in some of the risks and limit downside. Thus, we upgrade our rating from HOLD to BUY with a revised target price of Rs. 110 (Rs. 130 earlier) and value the bank at ~0.8x FY23EABV.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_DCB_Q4FY21.pdf
Shares of DCB Bank Limited was last trading in BSE at Rs.98.7 as compared to the previous close of Rs. 92.75. The total number of shares traded during the day was 497671 in over 5899 trades.
The stock hit an intraday high of Rs. 99.75 and intraday low of 92. The net turnover during the day was Rs. 48038271.