Development Credit Bank (Q1 FY14)

India Infoline News Service | Mumbai |

 DCB’s loan book de-grew by 1.7% sequentially, as against our expectation of 3% growth. Notwithstanding a 3% qoq/38% yoy growth in Retail segment, the credit portfolio shrunk owing to de-growth in Corporate (14% qoq) and SME+MSME (6% qoq) segments.

CMP Rs50, Target Rs60, Upside 20.5%
  • Once again DCB has beaten our expectation significantly reporting a net profit of Rs428mn in Q1 FY14 versus our expectation of Rs317mn. The huge difference is largely attributable to spike in non-interest income (Rs451mn in Q1 FY14 as against our expectation of Rs308mn). NII is almost in line with our expectations. Provision for NPAs stood at Rs85mn versus our expectation of Rs75mn driven by floating provision of Rs14mn, additional provisions on the existing NPAs and incremental provisions on the fresh additions. Tax payment for the quarter continued to be nil given the substantial unabsorbed losses in the past.

  • DCB’s loan book de-grew by 1.7% sequentially, as against our expectation of 3% growth. Notwithstanding a 3% qoq/38% yoy growth in Retail segment, the credit portfolio shrunk owing to de-growth in Corporate (14% qoq) and SME+MSME (6% qoq) segments. Within Retail, Mortgages continued to be the main growth driver posting a robust growth of 7.4% qoq/43.9% yoy. Resultantly, its share in credit portfolio rose from 36% in Q4 FY13 to 40% in Q1 FY14. Growth in Corporate and SME+MSME segment is deliberately held back owing to higher NPAs emerging from these segments. DCB is focusing on branch expansion primarily to meet its PSL target (through direct lending rather than relatively lower yielding portfolio buyout). It plans to add 20-30 branches in FY14. Going forward, Retail and direct priority sector lending would continue to be the main growth driver.


  • Deposits de-grew by 0.5% led by substantial run down in wholesale deposits (22.8% qoq). As a result, its share in total deposits declined from 11.3% in Q4 FY13 to 8.7% in Q1 FY13. Lower reliance on wholesale deposits is a positive in an environment where Marginal Standing Facility rate has been raised by RBI by 200bps to 10.25%. CASA deposits grew by 0.7% in Q1 FY14 improving CASA ratio by 30bps qoq to 27.5%. It is expected to improve gradually in the ensuing quarters as the new branches breaks-even. Traction in NRI deposits continued to remain robust reporting a growth of 7.4% qoq/51.2% yoy.


  • NIM declined by 8bps qoq to 3.44% compared to our expectation of 5bps fall. This is attributable to decline in Yield on Advances (10bps) higher than offset the fall in Cost of Funds (7bps) and decline in Credit/Deposit ratio by 1ppt sequentially. Robust traction in retail lending, structural improvement in priority sector portfolio and improvement in deposit profile is likely to keep the margin in steady state. Management has guided a NIM of 3.25-3.30% for FY14.


  • Asset quality has weakened during the quarter with GNPA ratio rising from 3.2% in Q4 FY13 to 3.4% in Q1 FY14. Of the total slippages of Rs210mn, there was one chunky corporate account worth Rs90mn. However, bank has more-than-adequate collateral against this loan. Asset quality of Retail and AIB portfolio is healthy whereas Corporate and SME+MSME segments continue to appear vulnerable. Thereby, bank has become very selective and cautious in Corporate and SME+MSME lending. The average ticket size of SME+MSME loans has been reduced from Rs70mn to Rs30mn to curb further deterioration in credit quality. DCB has strengthened its focus towards better quality secured lending to sustain healthy asset quality. PCR continues to remain robust at ~85%.


  • Non-interest income reported a robust growth of 36.4% qoq/64% yoy largely driven by profit on sale of investments (Rs160mn in Q1 FY14 compared to Rs52mn in Q4 FY13) and bad debts recovered (Rs37mn in Q1 FY14 compared to Rs10mn in Q4 FY13). During the quarter, bank added 7 branches taking the total branch count to 101 as on Jun’2013. Banks efforts to reduce rental cost of the existing branches and robust growth in total income resulted in an improvement in Cost/Income ratio by 250bps to 60% in Q1 FY14. Anticipating a healthy growth in income and improvement in branch productivity, C/I ratio is expected to improve further in FY15.


  • DCB is strongly capitalized with CAR & tier I ratio of 13.8% and 13.1% respectively, more-than-commensurate to execute its balance sheet expansion plan and Basel III norms. RoA is expected to remain healthy supported by strong margin and improvement in operating efficiency. No tax liability is expected in next 3-4 quarters owing to availability of huge unabsorbed losses.


  • Notwithstanding the challenging environment, DCB has consistently delivered strong performance. Healthy margin, robust non-interest income, improvement in operating efficiency, robust PCR, strong capitalization and resulting upward trending RoA enforced us to raise our earnings estimates by 10-12% for both FY14 and FY15. Maintain BUY with increased target price of Rs60. 

Result table
(Rs mn)
Q1 FY14
Q4 FY13
% qoq
Q1 FY13
% yoy
Total Interest Income
2,607
2,532
3.0
2,135
22.1
Interest expended
(1,776)
(1,717)
3.5
(1,496)
18.7
Net Interest Income
831
815
2.0
639
30.0
Other income
451
331
36.4
275
64.0
Total Income
1,282
1,146
11.9
914
40.2
Operating expenses
(769)
(716)
7.4
(666)
15.4
Provisions
(85)
(89)
(4.3)
(59)
43.7
PBT
428
341
25.4
189
126.5
Tax
-
-
-
-
-
Reported PAT
428
341
25.4
189
126.5
EPS
6.8
5.5
25.4
3.1
117.9
 
Key  Ratios
Q1 FY14
Q4 FY13
chg qoq
Q1 FY13
chg yoy
NIM (%)
3.4
3.5
(0.1)
3.2
0.3
BSE 190.15 2.55 (1.36%)
NSE 190.90 3.40 (1.81%)

***Note: This is a NSE Chart

 

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