24 May 2020 Results Review 4QFY20 DCB Bank HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters Attractive amidst visible headwinds DCBB’s 4QFY20 performance was underwhelming on a/c of the rise in GNPLs despite the standstill classification (albeit partial) benefit. Profit was below estimates, impacted by higher provisions. We’ve lowered our estimates to factor for higher provisions, slower growth and NIM compression. We like DCBB’s conservative lending approach but extrinsic factors will pose significant near term challenges given its significant MSME exposure. We maintain ADD with a TP of Rs 100 (0.9xFY22E ABV). Deposit traction was muted at 6.8/2.1%, as CASA deposits (21.5%) registered a 4.3/6.1% fall. Term deposits grew 10.3/4.6%. Sequentially, non- retail TDs grew 17.1% (flattish YoY) while retail TDs (75.6% of TDs) grew just 1.2% QoQ (+14% YoY). DCBB’s deposit granularity improved as the share of top 20 depositors fell ~275bps YoY to ~9.3%. Asset quality deterioration: GNPAs rose 14.4% QoQ to Rs 6.32bn (2.46%, +62/31bps) and slippages remain elevated at Rs 1.5bn (2.4% ann.). Performance on this front is disappointing, given the ~24/140bps cushioning impact of the standstill classification of a/cs on GNPLs/ slippages. To its credit, DCBB did not avail the standstill classification benefit on ~Rs 430mn of loans (not incl. above) and made near nil. w/os this qtr. Despite prudent credit filters, we’re compelled to increase our slippages estimates to 3.75% in FY21E as extrinsic factors will impact asset quality. Further, a significant portion of the book under moratorium (60%) portends higher stress. Loan growth slowed further, to 7.5% YoY (flattish QoQ). The sluggishness was broad-based with negligible QoQ growth across most segments. At present, the bank is disbursing some gold, corp and home loans. The management expects a meaningful uptick in disbursals only post 1HFY21E. Given the prolonged disruption to economic activity, we’ve reduced our growth estimates further to 10.5% over FY21-22E. COVID-19 related management commentary: ~60% of DCBB’s loan book was under moratorium as at Apr-20. The facility was offered on an ‘opt-in’ basis to most customers. Additional disclosures on the mortgage book were comforting and positively surprising (more on page 2). Borrowers representing DCBB’s entire LAP, MSME, CV and part of its corp. book would be eligible under the recently announced MSME package. ~60-70% of DCBB’s MSME borrowers have their sole operating a/c with the bank. The bank saw good retail deposit traction (~Rs 8bn) in Apr & May-20. DCBB doesn’t intend to raise equity capital in the near term. Financial Summary (Rs mn) 4Q FY20 4Q FY19 YoY (%) 3Q FY20 QoQ (%) FY19 FY20P FY21E FY22E Net Interest Income 3,237 3,009 7.6% 3,231 0.2% 11,493 12,649 12,769 14,437 PPOP 2,120 1,853 14.4% 1,899 11.6% 6,466 7,531 7,575 8,585 PAT 687 963 -28.7% 967 -29.0% 3,254 3,379 3,027 3,857 EPS (Rs) 2.2 3.1 -28.9% 3.1 -29.1% 10.5 10.9 9.8 12.4 ROAE (%) 11.0 10.3 8.5 9.9 ROAA (%) 0.99 0.91 0.76 0.89 Adj. BVPS (Rs) 87.8 92.9 94.4 113.8 P/ABV (x) 0.69 0.65 0.64 0.53 P/E (x) 5.8 5.6 6.2 4.9 Source: Bank and HSIE Research ADD CMP (as on 22 May 2020) Rs 60 Target Price Rs 100 NIFTY 9,039 KEY CHANGES OLD NEW Rating Add Add Price Target Rs 114 Rs 100 EPS % FY21E FY22E -19.1 -4.4 KEY STOCK DATA Bloomberg code DCBB IN No. of Shares (mn) 310 MCap (Rs bn) / ($ mn) 19/247 6m avg traded value (Rs mn) 147 52 Week high / low Rs 245/60 STOCK PERFORMANCE (%) 3M 6M 12M Absolute (%) (64.5) (65.7) (73.7) Relative (%) (39.0) (41.7) (52.2) SHAREHOLDING PATTERN (%) Dec-19 Mar-20 Promoters 14.9 14.9 FIs & Local MFs 32.8 35.3 FPIs 24.6 22.8 Public & Others 27.7 27.0 Pledged Shares 0.00 0.00 Source : BSE Darpin Shah [email protected]+91-22-6171-7328 Aakash Dattani [email protected]+91-22-6171-7337
Transcript
24 May 2020 Results Review 4QFY20
DCB Bank
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Attractive amidst visible headwinds
DCBB’s 4QFY20 performance was underwhelming on a/c of the rise in GNPLs
despite the standstill classification (albeit partial) benefit. Profit was below
estimates, impacted by higher provisions. We’ve lowered our estimates to
factor for higher provisions, slower growth and NIM compression. We like
DCBB’s conservative lending approach but extrinsic factors will pose
significant near term challenges given its significant MSME exposure. We
maintain ADD with a TP of Rs 100 (0.9xFY22E ABV).
Deposit traction was muted at 6.8/2.1%, as CASA deposits (21.5%)
registered a 4.3/6.1% fall. Term deposits grew 10.3/4.6%. Sequentially, non-
retail TDs grew 17.1% (flattish YoY) while retail TDs (75.6% of TDs) grew
just 1.2% QoQ (+14% YoY). DCBB’s deposit granularity improved as the
share of top 20 depositors fell ~275bps YoY to ~9.3%.
Asset quality deterioration: GNPAs rose 14.4% QoQ to Rs 6.32bn (2.46%,
+62/31bps) and slippages remain elevated at Rs 1.5bn (2.4% ann.).
Performance on this front is disappointing, given the ~24/140bps cushioning
impact of the standstill classification of a/cs on GNPLs/ slippages. To its
credit, DCBB did not avail the standstill classification benefit on ~Rs 430mn
of loans (not incl. above) and made near nil. w/os this qtr. Despite prudent
credit filters, we’re compelled to increase our slippages estimates to 3.75% in
FY21E as extrinsic factors will impact asset quality. Further, a significant
portion of the book under moratorium (60%) portends higher stress.
Loan growth slowed further, to 7.5% YoY (flattish QoQ). The sluggishness
was broad-based with negligible QoQ growth across most segments. At
present, the bank is disbursing some gold, corp and home loans. The
management expects a meaningful uptick in disbursals only post 1HFY21E.
Given the prolonged disruption to economic activity, we’ve reduced our
growth estimates further to 10.5% over FY21-22E.
COVID-19 related management commentary: ~60% of DCBB’s loan book
was under moratorium as at Apr-20. The facility was offered on an ‘opt-in’
basis to most customers. Additional disclosures on the mortgage book were
comforting and positively surprising (more on page 2). Borrowers
representing DCBB’s entire LAP, MSME, CV and part of its corp. book
would be eligible under the recently announced MSME package. ~60-70% of
DCBB’s MSME borrowers have their sole operating a/c with the bank. The
bank saw good retail deposit traction (~Rs 8bn) in Apr & May-20. DCBB
doesn’t intend to raise equity capital in the near term.
Financial Summary
(Rs mn) 4Q
FY20
4Q
FY19
YoY
(%)
3Q
FY20
QoQ
(%) FY19 FY20P FY21E FY22E
Net Interest Income 3,237 3,009 7.6% 3,231 0.2% 11,493 12,649 12,769 14,437
From 2nd March 2020, we have moved to new rating system
RECOMMENDATION HISTORY
50
100
150
200
250
Ma
y-1
9
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
DCB Bank TP
Page | 11
DCB Bank: Results Review 4QFY20
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