- DCB’s loan book grew by 5.2% sequentially, almost in-line with our expectation of 5.5%. The yoy credit growth momentum was robust at 38.5%. The strong growth was largely driven by Retail (8.6% qoq) and Corporate (8.3% qoq) segments, followed by SME+MSME (2% qoq). Agriculture & Inclusive banking portfolio declined by 6.1% sequentially. Within Retail, mortgages (~86% of the Retail portfolio) continued to be the main growth driver posting 9.2% qoq/41% yoy growth. Bank is selective and extremely watchful in SME+MSME lending owing to challenges confronted in this segment. Management has guided credit growth of 25%+ in FY13.
- Deposits grew at a robust pace reporting 5.9% sequential growth, as against our expectation of 3.5%. The growth was led by Retail TDs, up by 8.2% qoq/31.7% yoy. CASA deposits remained almost flat (0.5% qoq) resulting in decline in CASA ratio by 160bps, from 30.4% in Q2 FY13 to 28.9% in Q3 FY13. With Wholesale TDs growing behind the total deposits, its share in total deposits has come down further to 10.6% from 10.8% in the previous quarter.
- NIM rose by 14bps from 3.24% in Q2 FY13 to 3.38% in Q3 FY13. This was driven by rise in YoA (4bps qoq), interest earning assets (4% qoq) growing ahead of interest bearing liabilities (3.2% qoq), shift in mix towards higher-yielding assets (advances) and lower interest bearing liabilities (deposits) within the asset and liability side respectively. Sequentially, we expect NIM to decline owing to focus on lower-yielding agricultural lending to meet PSL target. Management has guided a NIM of 3-3.25% for FY13.
- Asset quality remained stable with GNPA ratio (3.8% in Q3 FY13) declining by 6bps sequentially. NNPA ratio (0.73% in Q3 Y13) rose by 5bps qoq resulting in marginal decline in PCR. However, PCR still stands high at 88%. Fresh additions to the NPA stood at Rs200bn, resulting in delinquency ratio of 1.4% (annualized). Slippages were largely witnessed in secured SME+MSME lending, backed by hard collateral. Bank does not foresee any major stress on the asset quality. We expect asset quality to improve further given the bank’s cautious approach in lending and effective monitoring.
- Non-interest income witnessed sluggish growth (5.1% qoq/10.2% yoy) due to several regulatory changes. Cost/Income ratio improved by 340bps qoq to 68.5% in Q3 FY13. With such high C/I ratio, bank has huge operating leverage opportunity. At C/I ratio of 68.5%, bank delivered RoA of 1.14%. A further improvement in this ratio would result in up-trending RoA curve. Bank plans to add 6-7 branches in Q4 FY13, containing the C/I ratio below 70%.
- DCB is strongly capitalized with CAR & tier I ratio of 13.7% and 12.6% respectively. During Q3 FY13, bank raised Rs402mn through Preferential Allotment. The existing capital is sufficient to meet it planned balance sheet expansion in the medium term. With unabsorbed loses to the tune of Rs2.5bn currently, DCB will not be required to make any tax payments for next 5-6quarters.
- The consistent strong performance of DCB - healthy margin, favourable deposit mix, improving asset quality and operating efficiency, robust PCR, strong capitalization and resulting upward trending RoA, enforced us to increase our FY13/FY14 earnings estimate by 13%/8%. Maintain BUY with target price of Rs59.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||2,294||2,199||4.3||1,835||25.0|
|Net Interest Income||720||670||7.5||597||20.7|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Yield on Advances (%)||12.7||12.7||0.0||12.9||(0.2)|
|Cost of Funds (%)||7.7||7.7||(0.0)||7.2||0.6|
|Non-interest income (%)||40.2||41.1||(0.9)||44.0||(3.8)|
|Non-interest in/Int exp (%)||18.4||18.0||0.4||21.2||(2.8)|
|Cost to Income (%)||68.5||71.9||(3.4)||73.8||(5.3)|
|Provisions/Avg Advances (%)||0.3||0.3||0.0||0.6||(0.3)|
|Gross NPA (%)||3.8||3.9||(0.1)||5.7||(1.9)|
|Net NPA (%)||0.7||0.7||0.0||1.0||(0.3)|