DCB surprised again with stellar performance reporting a PAT of Rs189mn (9.2% sequential growth) versus our expectation of Rs151mn. Loan book grew by a decent 3.1% qoq as against our expectation of 1%. In-line with management strategy, growth was driven by retail segment (9% qoq) and within retail, Mortgage (15.3% qoq) was the main growth driver. SME+MSME lending was almost flat in Q1 FY13 after growing by robust 10.4% qoq in the previous quarter. The sluggish growth was the result of lower demand and repayments. 40% and 34% yoy growth in Retail and SME+MSME segments respectively reflects management’s focus on these segments in achieving the desired credit growth. Management prefers direct agricultural lending that is better-yielding to meet its PSL obligation. Retail lending as a proportion of total advances rose from 26% in Mar’2010 to 37% in Jun’2012. Corporate book grew by 3.1% qoq and 23.3% yoy. Going forward, bank will be selective in corporate lending, thereby growing it moderately. Bank has re-launched its CV business solely to meet its PSL obligation. Management has guided to grow it loan book by 20-22% in FY13.
Deposits grew by healthy 7.8% sequentially, as compared to our estimate of 4.5%, dragging down the C/D ratio by 3ppt to 80% in Q1 FY13. The growth was led by Term Deposits (10.2% qoq). Share of bulk deposits moved up from ~10% in Q4 FY12 to ~12% in Q1 FY13, owing to 27.3% sequential growth. However, it is still below the level observed in most of the other banks. Retail TDs grew by 7% sequentially. CASA witnessed a sluggish growth of 1.5% qoq, thereby resulting in 190bps dip in CASA ratio to 30.3% in Q1 FY13. The slowdown in CASA was driven by Current Account (CA) balances, mobilization of which has been a challenge in current macro situation. However, bank witnessed strong traction in its Saving Account (SA) balances. Bank will strive to maintain its CASA ratio above 30%. Deposit growth will be calibrated according to the credit growth in FY13.
NIM held up well at 3.18% in Q1 FY13, up by 6bps as against our expectation of 20bps fall. With strong growth in advances of ~23% in Q4 FY12 and ~3% in Q1 FY13, interest on advances spurted by 13.4% sequentially. Re-pricing of Term Deposits at higher rate led to a 23bps rise in CoD, resulting in 9.8% sequential growth in interest expenses. Thereby, NIM witnessed marginal improvement with Net interest income growing ahead of interest earning assets. In anticipation of reduction in CoF, which is currently at all-time high of 7.8%, management expects NIM to remain stable in Q2 FY13. Management has guided NIM to be in the range of 3-3.25% in FY13.
Asset quality improved further with 22bps decline in GNPA ratio to 4.18% in Q1 FY13. However NNPA ratio rose by 18bps owing to decline in credit cost from 55bps in Q4 FY12 to 44bps in Q1 FY13. Although PCR declined by 2.5% in Q1 FY13, it is still robust at 88.5%, much higher compared to its peers. Fresh additions stood at Rs220mn during the current quarter. Two major accounts one from SME segment (Rs120mn) and one from Retail segment (Rs30mn) slipped during the quarter. Both accounts are collateralized by more than 100%. Outstanding restructured advances are about Rs100mn, which comprises of four accounts. Out of these four accounts, two have started functioning well. We believe the GNPA ratio would continue to improve given the bank’s focus on high quality assets, secured lending and strong recovery.
Cost/Income ratio continued to be high at ~73%, highest in the industry. Staff expenses rose by 6.1% sequentially on account of salary increment and other expenses increased by 11.2% due to branch additions and renewal of lease-rent agreement pertaining to security and house-keeping during the quarter. Currently, the bank operates through 86 branches and has license for opening 6 more branches. Bank will utilize all the pending licenses and open few more branches in the areas with population of less than 100,000, where licenses are not required. The sole purpose of setting up these branches would be CASA mobilization and to aid SME lending.
DCB is strongly capitalized with CAR and Tier I ratio of 14.5% and 13.2% respectively. With such high capital adequacy, the bank is well-positioned to support its planned balance sheet growth for next 2-3 years.
The only cause of concern for DCB is the high CoF and elevated Cost/Income ratio. Barring these, DCB has well-diversified loan book, lower reliance on volatile bulk deposit, healthy asset quality, stable NIM, strong capitalization and sturdy provisioning. Factoring in the strong fundamentals, we upgrade our target multiple to 1.5x and target price to Rs52. Recommend BUY.
|(Rs m)||Q1 FY13||Q4 FY12||% qoq||Q1 FY12||% yoy|
|Total Interest Inc||2,135||1,933||10.5||1,616||32.1|
|Net Interest Inc||639||571||12.0||519||23.2|
|Key Ratios||Q1 FY13||Q4 FY12||chg qoq||Q1 FY12||chg yoy|
|Yield on Advances (%)||12.7||12.9||(0.2)||11.9||0.9|
|Cost of Funds (%)||7.8||7.6||0.2||6.7||1.1|
|Non-interest income (%)||43.0||52.4||(9.4)||45.2||(2.2)|
|Non-int inc/Int exp (%)||18.4||22.0||(3.6)||21.4||(3.0)|
|Cost to Income (%)||72.8||72.5||0.4||78.1||(5.2)|
|Gross NPA (%)||4.2||4.4||(0.2)||5.9||(1.7)|
|Net NPA (%)||0.8||0.6||0.2||1.2||(0.4)|
|Y/e 31 Mar (Rs m)||FY11||FY12||
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