DCB Bank Sees Growth In Q3FY13, Stumbles On Asset Quality

DCB Bank came out with a robust set of Q3FY13 numbers post market hours on Tuesday, Jan 15. For the Dec 2012 quarter, the bank’s Net Interest Income (NII) increased by 22% to Rs 72 crore, while its Net Profit stood at Rs 26.9 crore against Rs 15.64 crore, increasing by 72% on a YoY basis. The bank also made lower provisions during the quarter, which were down 29% to Rs 5 crore. The key financial parameters of the bank are as follows:

During the quarter, DCB Bank’s Net Interest Margin (NIM) increased by 1 basis point to 3.38% on a YoY basis and by 14 basis points on a sequential basis, which is commendable. This improvement was seen as the cost of funds for bank decreased by 1 basis point to 7.73% while the yield on advances increased by 4 basis points to 12.73% on a sequential basis. With the interest rates expected to soften in the near future, we believe that the bank’s NIM would improve going ahead. 

As of Dec 2012, its Capital Adequacy Ratio (CAR) improved by 71 basis points to 13.71%, with the Tier 1 CAR standing at 12.63%. In the Dec 2012 quarter, the bank raised Tier 1 Capital of Rs 40.23 crore through preferential allotment, which has helped improve the overall CAR.

However, the bank faced some headwinds when it came to asset quality. Though its Gross NPAs showed improvement, decreasing by 6 basis points to 3.8%, the Net NPAs worsened, increasing by 5 basis points to 0.73% on a sequential basis. Further, the Provision Coverage Ratio improved by 21 basis points to 88%.

On the business front, DCB Bank has posted robust growth for the quarter. As on Dec 31, 2012, its deposits grew by 22% and stood at Rs 7558 crore, while the advances grew by 39% to Rs 5964 crore. Both these figures have outpaced the RBI’s growth estimates of 15% and 16% respectively for FY13. The cost-to-income ratio also improved by 512 basis points to 68.52%, which signifies that the bank is operating in an efficient manner.

On the segmental front, the Wholesale banking segment performed extremely well during the quarter. Revenue from the same increased by 35% to Rs 74 crore, while the profit stood at Rs 7 crore against Rs 1 crore in the similar quarter last year. The Retail banking segment also performed well, with 23% revenue growth to touch Rs 192 crore and profit growth of 256% to Rs 12 crore. 

We had recommended DCB Bank in DSIJ (Vol 27, Issue No. 23 dated Nov 4, 2012), when it was trading at Rs 46. Since then, the stock has appreciated by 4% and has a current market price of Rs 50.

Overall, the bank posted good numbers in most of the parameters except for asset quality, where it faced some headwinds. Commenting on the result, Murali M. Natrajan, Managing Director & CEO of DCB Bank, said, “Business momentum is steadily increasing. NPAs are in control although the environment has been difficult. We plan to increase our branch network in the coming months.” On the valuations front, the bank is currently available at a Price-to-Book value of around 1.3x. We recommend that investors hold on to the counter for a longer time horizon.