DCB Bank Q4FY17: Maintain 'buy' for upside of 25% from current levels
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DCB Bank reported another healthy quarter witnessing growth both on Balance sheet and profitability. As on Q4FY17 advances stood at Rs. 15,818 Cr vs Rs. 12,921 Cr in Q4FY16 a growth of 22.4% YoY. NII grew at Rs. 220.3 Cr in Q4FY17 vs Rs. 168.7 Cr in Q4FY16 (+30.6%) and Rs. 209.5 Cr in Q3FY17 (+5.1%). Total Income grew 23.3% YoY from Rs. 230.1 Cr to Rs. 283.9 Cr led by flattish growth in other income of 3.5% (Rs. 63.6 Cr vs Rs. 61.5 Cr last year). Pre-provisioning profit was at Rs. 115.3 Cr vs Rs. 97 Cr (+19% YoY) due to higher operating expenses on account of branch expansion. Cost to income ratio went up 152 bps YoY to 59.4%. The bank reported a Net Profit of Rs. 52.9 Cr for Q4FY17 vs Rs. 69.5 Cr in Q4FY16 (-24% YoY on account of moving to full tax regime), Rs. 51.3 Cr in Q2FY17 (+3% QoQ).
For FY17, NII came at Rs. 797.1 Cr a growth of 28.7%, PBP at Rs. 418.2 Cr vs Rs. 349 Cr (+19.8%) and flattish PAT at Rs. 199.7 Cr as bank moved to full tax regime.
On Asset quality front, Gross NPA went up 4 bps at 1.59% and Net NPA at 0.79% vs 1.55%/0.74% in Q3FY17 and 1.51%/0.75% in Q4FY16 resp. Slippages for the quarter were Rs. 74.2 Cr.
Valuation and Outlook
We believe that after first half of FY18, post the completion of branch expansion plan the cost to income ratio will fall and return ratios will improve as the benefit of all these new branches will be visible. This investment of the bank will lead to healthy returns in the long run. We remain positive on the stock given the strong growth in earnings and well capitalized and healthy balance sheet. At CMP of Rs. 176, DCB Bank is trading at 2.2x/1.8x FY18E/FY19E Adj. BV and 19.7x/14.9x FY18E/FY19E EPS respectively. We maintain BUY on the stock for a revised target price of Rs 220(2.3x of FY19E Adj. BV) indicating an upside of 25% from current levels.
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Founded in 1986 by Nirmal Bang, the Nirmal Bang is recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Their retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang.
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