Reiterate buy on DCB; growth momentum continues: Edelweiss

By: | Updated: July 17, 2015 12:19 AM

DCB reported Q1FY16 NII of R140 crore vs Rs 139 crore, up 1% y-o-y was in line with estimate. Optically NII growth looks subdued...

DCB reported Q1FY16 NII of R140 crore vs Rs 139 crore, up 1% y-o-y was in line with estimate. Optically NII growth looks subdued but adjusted for one time interest on tax refunds in Q1FY15, it came in healthy up 29% y-o-y on higher loan growth and stable NIMs. DCB’s advances growth remained strong in Q1FY16;. Loan growth traction was higher in the mortgage segment. NIMs remained stable. Going forward, we expect margins to remain in the range of 3.4% to 3.6% for FY16-17e.

Asset quality continues to be at a comfortable level, with GNPAs coming in at 1.96% vs 1.76% in Q4FY15. Slippages came in higher largely contributed by only one large corporate account of R10 crore and from gold loans portfolio of R13 crore which slipped due to technical reasons, where management mentioned they have adequate collateral. With no restructuring during the quarter, the bank’s outstanding restructured assets stood at 0.5%. With stressed assets of 1.7%, we believe the bank is well positioned to steer the asset quality out of pressures compared to peers.

Led by strong business traction and healthy asset quality, we expect DCB to register PAT CAGR of 15% over FY15-17e despite full tax rate impact in FY16. DCB is reasonably attractive for a strong regional franchise, with normalised RoAs of 1.3%. We maintain ‘buy’ with a target price of R 175.

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