Company Update Rating matrix Rating : Hold Target : 200 Target Period : 12 months Potential Upside : -4% What s Changed? Target Changed from 165 to 200 EPS FY18E EPS FY19E Rating Key Financials Crore FY16 FY17 FY18E FY19E NII 619.5 796.5 933.3 1096.9 PPP 349.0 417.6 507.5 618.0 PAT 194.3 199.9 261.4 325.6 ABV ( ) 57.8 63.9 79.1 89.1 Valuation summary FY16 FY17 FY18E FY19E P/E 30.4 29.6 24.5 19.7 Target P/E 29.3 28.5 23.6 18.9 P/ABV 3.6 3.3 2.6 2.3 Target P/ABV 3.5 3.1 2.5 2.2 RoA 1.1 0.9 1.0 1.0 RoE 12.0 11.1 11.7 12.0 Stock data Particular Amount Market Capitalisation 6409 crore GNPA (Q4FY17) 254 crore NNPA (Q4FY17) 124 crore NIM (Q4FY17) 4% 52 week H/L 210/92 Networth 2199 Crore Face value 10 DII Holding (%) 23.6 FII Holding (%) 17.1 Price chart 10,000 8,500 7,000 5,500 4,000 Feb-15 Jun-15 Oct-15 Feb-16 Research Analyst DCBB IN Equity Kajal Gandhi kajal.gandhi@icicisecurities.com Vishal Narnolia vishal.narnolia@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com Jun-16 Oct-16 Feb-17 NIFTY Index Jun-17 250 200 150 100 50 0 Healthy fundamentals priced in June 13, 2017 DCB Bank (DCB) 208 Mid-sized private sector bank stocks saw a run up in the recent past in anticipation of a better performance in terms of growth and asset quality. The stock price of DCB Bank has seen highest run up among banking peers to the tune of ~84% YTD from January 1, 2017 till date. Healthy growth in advances at ~22% YoY and broadly steady asset quality (GNPA at ~1.6%) may have led to the stock price surge. With recent capital raising of ~ 397 crore, DCB is well placed on capital adequacy front (that has been an area of concern for PSBs) for future growth. Branch expansion plans remain on track with the existing branch count increasing to 262 in FY17 from ~160 in Q2FY16. Cost-income ratio, though higher, has been maintained at ~60% in FY17, which remains below earlier estimates. Going ahead, we expect CI ratio to gradually improve from ~60% in FY17 to ~56-57% in FY19E. DCB Bank has reported a healthy performance in terms of growth and profitability, maintaining overall asset quality. With increased business and improving efficiency, PAT growth is seen at 28% CAGR to 326 crore in FY17-19E. RoA is expected to improve to ~1% by FY19E. Therefore, we revise our target price higher to 200 ( 165 earlier) assigning multiple of 2.2x FY19E ABV. The recent stock price rally seems to have factored in the positives. Gradual improvement in return ratios owing to elevated CI ratio With a view to laying the foundation of a future endeavour and counter competition from MFI who have been awarded small bank licences, DCB in Q2FY16 announced a shift in its strategy from stable growth to aggressive expansion. Consequently, the bank is looking to double its branch count to ~300 till December 2017 (existing branch count 262). The headcount is expected to increase ~50% to 5400-5800 from 3800 in Q2FY16. In addition, investment in enhanced customer facing technology is on the anvil. With investment towards increasing scale & scope of reach, we expect the cost-to-income ratio to be ~58% in FY17-18E. With a lag in revenue accretion until new branches achieve break even, we expect RoA to improve gradually in FY17-19E. Management aims to double balance sheet in three to four years The bank has been in a consolidation phase in FY08-11 with ~85 branches with the credit book flat at ~ 4200 crore in FY08-11. Post FY11, the credit book grew more than 3x from 4271.4 crore in FY11 to 12921 crore in FY16 implying 24.8% CAGR. DCB has steadily shed its risky unsecured loan book in the past couple of years while loan growth is now contributed by mortgage (secured book), which now comprises ~45% of total credit. Going ahead, with aggressive branch expansion and focus on growing the loan book, the management has guided at doubling the balance sheet of the bank in three to four years. We estimate the credit book will grow at 24% CAGR in FY17-19E to 24307 crore. Asset quality remains manageable Amid a slowdown in corporate activity, asset quality has witnessed deterioration with GNPA rising from 6.2% in FY11 to 1.59% in FY17. Going ahead, we expect NPA accretion to continue though the pace is seen dwindling. Therefore, we are not negative on the overall asset quality and expect it to remain manageable across business segments. Going ahead, we expect the GNPA ratio at 1.7% while NNPA ratio is estimated at ~0.8% by FY19E. We maintain our HOLD rating on the stock. ICICI Securities Ltd Retail Equity Research
Financial summary Profit and loss statement Crore Interest Earned 1698.5 2076.5 2487.6 2983.5 Interest Expended 1079.0 1280.0 1554.4 1886.7 Net Interest Income 619.5 796.5 933.3 1096.9 growth (%) 21.9 28.6 17.2 17.5 Non Interest Income 220.5 249.7 285.9 330.8 Net Income 840.0 1046.1 1219.2 1427.7 Staff cost 245.1 308.7 345.2 367.2 Other Operating expense 245.8 319.8 366.5 442.5 Operating profit 349.0 417.6 507.5 618.0 Provisions 88.2 110.5 113.2 126.8 Taxes 66.6 107.2 132.9 165.5 Net Profit 194.3 199.9 261.4 325.6 growth (%) 1.2 2.9 30.8 24.6 EPS ( ) 6.8 7.0 8.5 10.6 Key ratios Valuation No. of Equity Shares 28.4 28.4 30.8 30.8 EPS ( ) 6.8 7.0 8.5 10.6 BV ( ) 61.2 68.2 84.5 95.1 ABV ( ) 57.8 63.9 79.1 89.1 P/E (x) 27.6 26.8 22.2 17.8 P/BV (x) 3.1 2.8 2.2 2.0 P/ABV (x) 3.3 2.9 2.4 2.1 Yields & Margins (%) Net Interest Margins 3.7 3.9 3.8 3.7 Yield on assets 10.1 10.2 10.0 10.1 Avg. cost on funds 7.2 7.0 6.8 6.8 Yield on average advances 11.6 11.5 11.5 11.5 Avg. Cost of Deposits 7.3 7.0 6.8 6.7 Quality and Efficiency (%) Credit/Deposit ratio 86.6 82.0 82.9 83.8 GNPA 1.5 1.6 1.7 1.7 NNPA 0.8 0.8 0.8 0.8 Cost to income ratio 58.2 59.6 58.0 56.4 RONW 12.0 11.1 11.7 12.0 ROA 1.1 0.9 1.0 1.0 Balance sheet Crore Sources of Funds Capital 284.4 284.4 308.0 308.0 Reserves and Surplus 1506.2 1914.8 2552.7 2878.3 Networth 1790.6 2199.2 2860.7 3186.3 Deposits 14926.0 19289.8 23648.2 29021.3 Borrowings 1147.9 1276.0 1450.7 1650.9 Other Liabilities & Provisions 1252.5 1276.5 1340.3 1407.3 Total 19118.5 24043.0 29301.4 35267.3 Applications of Funds Fixed Assets 248.0 488.5 692.3 1004.9 Investments 4333.3 5816.9 6167.7 6542.4 Advances 12921.4 15816.6 19607.5 24307.2 Other Assets 724.2 674.9 1391.0 1739.8 Cash with RBI & call money 891.6 1246.2 1442.9 1672.9 Total 19118.5 24043.0 29301.4 35267.3 Growth ratios (%) Total assets 18.5 25.8 21.9 20.4 Advances 23.5 22.4 24.0 24.0 Deposit 18.4 29.2 22.6 22.7 Total Income 21.1 21.4 19.2 19.4 Net interest income 21.9 28.6 17.2 17.5 Operating expenses 23.8 28.0 13.2 13.8 Operating profit 25.8 19.7 21.5 21.8 Net profit 1.2 2.9 30.8 24.6 Net worth 13.5 11.5 34.1 12.5 EPS 0.4 2.9 20.8 24.6. ICICI Securities Ltd Retail Equity Research Page 2
ICICIdirect.com coverage universe (Banking) CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E Bank of Baroda (BANBAR) 171 200 Hold 38,860-23 6 16-7.3 28.6 10.8 1.9 1.7 1.4-0.8 0.2 0.5-13 3 8 Punjab National Bank (PUNBAN) 150 160 Buy 31,692-20 6 15-7.4 24.1 10.2 6.4 4.1 2.4-0.6 0.2 0.4-10 3 7 State Bank of India (STABAN) 287 335 Buy 231,918 13 13 19 22.4 21.5 15.0 2.5 1.7 1.6 0.4 0.4 0.5 7 6 8 Indian Bank (INDIBA) 300 350 Buy 14,309 15 29 32 20.3 10.2 9.5 1.4 1.3 1.2 0.4 0.7 0.7 5 8 9 Axis Bank (AXIBAN) 511 540 Hold 122,074 35 15 22 14.8 33.2 23.1 2.4 2.6 2.3 1.7 0.7 0.8 17 7 9 City Union Bank (CITUNI) 174 185 Buy 10,535 7 8 10 23.5 20.9 18.3 3.8 3.4 2.9 1.5 1.5 1.5 16 15 15 DCB Bank (DCB) 208 200 Hold 6,256 7 7 8 30.4 29.6 24.5 3.6 3.3 2.6 1.1 0.9 1.0 12 11 12 Federal Bank (FEDBAN) 116 130 Buy 19,773 3 5 7 41.9 24.0 16.8 2.8 2.5 2.2 0.5 0.8 0.9 6 10 13 HDFC Bank (HDFBAN) 1,677 1,700 Buy 430,206 49 57 69 34.5 29.5 24.3 5.9 5.1 4.6 1.9 1.9 1.9 18 18 19 IndusInd Bank (INDBA) 1,506 1,570 Buy 90,425 34 38 48 44.4 39.2 31.4 7.7 5.1 4.5 1.8 1.9 1.8 18 16 15 Jammu & Kashmir Bk(JAMKAS) 85 95 Buy 4,753 9-31 7 10.0-2.7 11.8 1.0 1.4 1.3 0.5-2.0 0.4 7-27 6 Kotak Mahindra Bank (KOTMAH) 975 950 Hold 231,918 11 19 23 85.6 52.6 41.7 7.9 6.9 6.0 1.1 1.7 1.8 9 13 14 Yes Bank (YESBAN) 1,500 1,650 Hold 68,111 48 60 73 31.2 24.9 20.6 4.6 3.2 2.7 1.6 1.7 1.8 21 20 19 ICICI Securities Ltd Retail Equity Research Page 3
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