result update dcb bank...

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Edelweiss Securities Limited

DCB Bank’s (DCB) Q2FY18 PAT at INR589mn (up 21.5% YoY) belied our estimate on lower-than-expected non-interest income (lower investment profit). Key highlights: a) yet another quarter of >30% NII growth; b) slippages were contained at 1.9% (~2.0% past 8 quarters’ run rate), with credit cost curtailed at sub-80bps; and c) opex continued to be elevated on sustained branch expansion (cost-to-income ratio at >60%), restricting core profitability. DCB is at the fag end of its branch expansion exercise and operating leverage benefits are now likely to be apparent. We believe,

despite strong revenue momentum, RoE will be sub-par (at 11-12%) due to high cost ratios and recent capital raising, entailing limited upside from current level. Maintain ‘HOLD’.

Revenue momentum intact, but sustainability key NII momentum sustained (up >30% YoY) on above-industry loan spurt (up ~20% YoY on

higher base; albeit QoQ growth was ~7%) and superior NIMs (4.2%). While yields have

been under pressure, better funding cost and capital raising benefits have helped

improve NIMs. Going ahead, yields run the risk of declining as MCLR rate is >70bps

lower than the base rate despite 20bps rate cut in Q1FY18. Consequently, we

anticipate some pressure on NIMs and, hence, estimate ~23% NII CAGR over FY17-19.

Productivity improvement vital DCB continued its branch expansion exercise (added 16 in Q2FY18), taking the total

count to 306. Now the bank is at the fag end of its investment phase. But, cost ratios

are still running high and operating efficiency & productivity improvement in new

branches are vital for revenue traction (better productivity at recently added branches

is a key monitorable). Cost/income will be key trigger for improvement in return ratios.

Outlook and valuations: Fairly valued; maintain ‘HOLD’ While revenue traction has been softer than we would prefer, asset quality lends

comfort. Estimating >28% plus earnings CAGR over FY17-19 with operating leverage

benefits, we value DCB at 2.2x FY19E ABV for an RoE potential of 11-12%. This yields

target price of INR200. Monitorables are: 1) blip in productivity could mar revenue

traction; b) adverse impact of GST on MSME segment; and c) rising NPLs in the LAP

segment.

RESULT UPDATE

DCB BANK Soft quarter

COMPANYNAME

COMPANYNAME

EDELWEISS 4D RATINGS

Absolute Rating HOLD

Rating Relative to Sector Performer

Risk Rating Relative to Sector Medium

Sector Relative to Market Overweight

MARKET DATA (R: DCBA.BO, B: DCBB IN)

CMP : INR 184

Target Price : INR 200

52-week range (INR) : 213 / 100

Share in issue (mn) : 307.8

M cap (INR bn/USD mn) : 57 / 871

Avg. Daily Vol.BSE/NSE(‘000) : 2,317.2

SHARE HOLDING PATTERN (%)

Current Q1FY18 Q4FY17

Promoters *

15.0 15.0 16.2

MF's, FI's & BK’s 22.8 20.5 17.1

FII's 21.4 22.5 23.5

Others 40.7 41.9 43.2

* Promoters pledged shares (% of share in issue)

: NIL

PRICE PERFORMANCE (%)

Stock Nifty EW Banks and

Financial Services Index

1 month (3.3) 1.5 (1.1)

3 months (7.3) 3.2 1.7

12 months 46.2 20.1 26.8

Kunal Shah +91 22 4040 7579

[email protected]

Prakhar Agarwal +91 22 6620 3076

[email protected]

Malav Simaria +91 22 6623 3357

[email protected]

India Equity Research| Banking and Financial Services

October 17, 2017

Financials (INR mn)

Year to March Q2FY18 Q2FY17 Growth % Q1FY18 Growth % FY17 FY18E FY19E

Net revenue 3,134 2,519 24.4 3,189 (1.7) 10,466 13,131 15,712

Net profit 589 485 21.5 652 (9.7) 1,997 2,685 3,299

Dil. EPS (INR) 1.9 1.7 11.3 2.1 (11.8) 7.0 8.7 10.7

Adj. BV (INR) 65.2 80.8 91.5

Price/ Adj book (x) 2.8 2.3 2.0

Price/ Earnings (x) 26.3 21.1 17.1

Banking and Financial Services

2 Edelweiss Securities Limited

Table 1: Summary of Q2FY18 performance

(INR mn) Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) Comments

Net interest income 2,481 1,903 30.4 2,332 6.4 NII growth continues to maintain momentum. NIMs

benefitting from lower funding cost and fund raising,

while yields are under pressure. We expect some

moderation in NIMs.

Other income 653 616 5.9 858 (23.9) Other income softer given lower treasury income and

some softness in core fee profile.

Operating expenses 1,890 1,511 25.1 1,825 3.5 Opex continues to run at elevated levels; having said

that, productivity improvement will hold key.

Staff expense 921 748 23.1 905 1.8

Other opex 969 762 27.1 920 5.2

Pre prov Op profit (PPP) 1,244 1,009 23.4 1,364 (8.8)

Provisions 302 265 14.2 355 (14.8) Slippages were contained at 1.9% (run-rate of >2% in

past 8 quarters), with credit cost managed at sub-

80bps.

Profit before tax 942 744 26.6 1,009 (6.6)

Provision for tax 353 259 36.2 357 (1.1)

Profit after tax 589 485 21.5 652 (9.7)

EPS (INR) 1.9 1.7 11.3 2.1 (11.8)

Balance sheet (INR mn)

Advances 1,73,950 1,44,362 20.5 1,62,657 6.9 Loan growth was slower than trend at ~20% YoY (partly

on higher base, albeit on QoQ basis it grew 7%). Loan

growth was driven by ~30% YoY growth in SME/MSME

and ~50% YoY growth in CV loans (albeit on lower

base).

Deposits 2,05,671 1,76,846 16.3 1,91,548 7.4

CD ratio (%) 84.6 81.6 84.9

Asset quality (INR mn) 0.1 0.1 0.1 0.1 0.1

Gross NPA 3,158 2,554 23.7 2,853 10.7 Asset quality continues to be steady. The slippages

were curtailed at 1.9% after 3 quarters of > 2% run-rate.

Segment wise analysis suggests that slippages flowed

from mortgage and agri segments.

Gross NPA (%) 1.8 1.8 1.7

Net NPA 1,570 1,209 29.8 1,491 5.3

Net NPA (%) 0.9 0.8 0.9

Restructured book 0.2 0.2 0.2

Overall stress book 2.0 2.0 1.9

DCB Bank


Table 2: Loan growth at ~20% YoY, CD ratio at ~85%

Source: Company

Table 3: Margins maintained at 4.2%, sustenance key

Note: NIM, Yield on advances and Cost of funds in Q4FY16 column pertains to full year FY16 and in Q3FY16 column pertains to 9MFY16

Table 4: NPAs composition

Note: CV/STVL represents commercial vehicle and small ticket vehicle loan

Chart 1: Loan mix stable; higher focus on secured lending

Source: Company

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18

Advances (INR mn) 1,11,809 1,17,362 1,29,214 1,33,369 1,44,362 1,45,844 1,58,176 1,62,657 1,73,950

Advances growth Q-o-Q (%) 7.2 5.0 10.1 3.2 8.2 1.0 8.5 2.8 6.9

Advances growth Y-o-Y (%) 27.2 23.7 23.5 27.9 29.1 24.3 22.4 22.0 20.5

Deposits (INR mn) 1,35,573 1,40,835 1,49,260 1,56,796 1,76,846 1,88,395 1,92,892 1,91,548 2,05,671

Deposit growth Q-o-Q (%) 2.2 3.9 6.0 5.0 12.8 6.5 2.4 (0.7) 7.4

Deposit growth Y-o-Y (%) 24.4 18.8 18.4 18.2 30.4 33.8 29.2 22.2 16.3

CD ratio (%) 82.5 83.3 86.6 85.1 81.6 77.4 82.0 84.9 84.6

CASA (%) 24.1 22.9 23.4 23.1 21.9 25.9 24.3 26.9 25.9

(%) Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18

NIM 3.8 4.0 3.9 4.1 4.0 4.0 4.0 4.2 4.2

Yield on advances 12.5 12.3 12.5 12.2 12.0 12.0 12.0 11.7 11.2

Cost of funds 7.6 7.4 7.5 7.3 7.2 6.9 7.0 6.6 6.4

(INR mn) Q2FY18 Q2FY17 YoY Q1FY18 QoQ

Mortgages 1,164 743 56.7 1,002 16.2

CV/STVL 294 134 119.4 215 36.7

Corporate 675 861 (21.6) 675 0.0

Others 1,025 816 25.6 961 6.7

Total NPLs 3,158 2,554 23.6 2,853 10.7

Commercial Vehicle

5%

AIB17%

Corporate Banking

17%

SME+MSME

12%

Mortgages42%

Gold Loans2%

Others2% Constructi

on Finance3%

Q2FY18Commercia

l Vehicle5%

AIB17%

Corporate Banking

15%

SME+MSME

11%

Mortgages44%

Gold Loans2%

Others3% Constructi

on Finance3%

Q1FY18



Chart 2: Cost-income ratio elevated, remains key monitorable

Source: Company

50.0

54.0

58.0

62.0

66.0

70.0

Q2

FY1

6

Q3

FY1

6

Q4

FY1

6

Q1

FY1

7

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

(%)

Cost / income

DCB Bank


Financial snapshot (INR mn) Year to March Q2FY18 Q2FY17 % change Q1FY18 % change YTD18 FY18E FY19E

Interest income 5,870 5,063 15.9 5,660 3.7 11,530 24,673 29,466 Interest exp 3,389 3,160 7.3 3,329 1.8 6,717 14,552 17,284

Net int. inc. 2,481 1,903 30.4 2,332 6.4 4,813 10,120 12,182

Other income 653 616 5.9 858 (23.9) 1,510 3,010 3,530

Net revenues 3,134 2,519 24.4 3,189 (1.7) 6,323 13,131 15,712

Operating expenses 1,890 1,511 25.1 1,825 3.5 3,715 7,792 9,317

Staff expense 921 748 23.1 905 1.8 1,826 3,883 4,600

Other opex 969 762 27.1 920 5.2 1,889 3,909 4,717

Pre prov op profit 1,244 1,009 23.4 1,364 (8.8) 2,609 5,339 6,395

Provisions 302 265 14.2 355 (14.8) 657 1,271 1,397

Profit before tax 942 744 26.6 1,009 (6.6) 1,951 4,068 4,998

Provision for taxes 353 259 36.2 357 (1.1) 710 1,383 1,699

PAT 589 485 21.5 652 (9.7) 1,241 2,685 3,299

Diluted EPS (INR) 1.9 1.7 11.3 2.1 (11.8) 4.0 8.7 10.7

Ratios (%)

NII/GII 42.3 37.6 41.2 41.7 41.0 41.3

Cost/income 60.3 60.0 57.2 58.7 59.3 59.3

Provisions / PPOP 24.3 26.2 26.0 25.2 23.8 21.8

Tax rate 37.5 34.8 35.4 36.4 34.0 34.0

Bal. sheet data (INR bn)

Advances 173,950 144,362 20.5 162,657 6.9 173,950 194,557 239,305

Deposits 205,671 176,846 16.3 191,548 7.4 205,671 226,006 275,540

Capital adequacy (%) 14.7 11.9 15.3 14.7 13.8 12.5

CD ratio (%) 84.6 81.6 84.9 84.6 86.1 86.8

Asset quality

Gross NPA 3,158 2,554 23.7 2,853 10.7 3,158 3,657 4,244

Gross NPA (%) 1.8 1.8 1.7 1.8 1.9 1.8

Net NPA 1,570 1,209 29.8 1,491 5.3 1,570 1,635 1,644

Net NPA (%) 0.9 0.8 0.9 0.9 0.8 0.7

Valuation metrics

B/V per share (INR) 84.5 95.3

Adj book value / share 80.8 91.5

Price/ Adj. book (x) 2.3 2.0

Price/ Earnings 21.1 17.1



Q2FY18 earnings call highlights

With respect to guidance

Management aims to achieve growth rates in the range of 20-25%

o Management does not see the loan mix changing much going forward

Management aims to achieve C/I ratio and RoE of 55% and 14%, respectively, for exit

quarter of March 2019

o Management stated that RoA is not expected to worsen going ahead

While NIMs have been supported by CoF benefits and favourable re-financing, they

may fall going forward

o Management aims to maintain NIMs in the range of 370-375bps

Management is concerned about the new MCLR formula that may be

implemented by RBI

o Management aims to grow CASA deposits by atleast 20%

Aim is to double the balance sheet over the next 3-3.5 years

With respect to operations

New branch costs should slow down for the next 1-2 years, as expansion will be

limited to 10-12 branches / year

o Focus going forward will be on increasing the productivity of the branches

o Majority of the branches are full branches, with an average of 6-7 people per

branch

Q2FY18 saw some growth in corporate banking (got credit in AA and A segments;

market share gain from PSU banks)

o Aim is to restrict the proportion of corporate banking to 20% levels

o Every year, the bank adds around 20-25 customers; corporate banking ATS -

INR250-300mn

After exiting in 2009, the bank has been in CV business since the past 3 years

o CV business is restricted to small customers and should be 5% of book even in

future

While competition has increased in the mortgage and LAP segments, management is

confident in sustained growth

o This is on back of a strong distribution network and the fact that pricing is very fine

Other highlights

Contingent liabilities on taxes has come down from INR1bn to INR0.19bn

o During the quarter, interest on refund of income tax stood at INR72mn

Average ticket size – INR3-3.5mn

DCB Bank


Q1FY18 earnings call highlights

With respect to growth

Operating environment is very dynamic shaped by Demonetisation, then farm loan

waivers, then BS-IV, RERA and then GST. While these are long term positive but in the

interim there will likely be some pressure (positively CEO has met with various

customers across various states and found no major challenge in the business model).

Credit growth in environment is not very good and thus huge completion is there, for

bank the decision are based on risk appetite. Thus pressure are percolating into NIMs

(during the quarter 8-10bps NIMs improvement was due to capital raised in April 2017).

In effect NIMs are starting to decline (expect pressure to percolate over next couple of

quarters). In terms of internal projection, business modeling is done at 370-375bps,

even at that NIMs level bank expects to maintain decent business growth. Aims to

maintain NIMs at 373-375bps.

On track o deliver on growth target set in Oct -2015. The target was to double book

from ~INR110bn in Oct-15 over next 32-36 months. The Focus will continue on retail,

SME and small-ticket products (secured) and bank suggestively indicates that corporate

book will not grow beyond 20%

Close to completing branch expansion plans ( accounted in October 2015), will

complete the target of 310 branches by 2017. Post that the target will be to put 10-15

branches per year for next couple of years.

Have a concept of “All product All branches”. Thus when branch is opened minimally

CA/ SA/TD/gold loan and one of CV or SME or Mortgages are offered. The bank

generally hire people from local areas and core team has expertise across region thus

no real pressure on moving into new geographic location.

80-90% of branches are on track of 18-22 months of break-even. Some branches has

not done well , few hicupps on the specific teams which bank has to redo it and bank is

catching up on that branches.

Bank is working on trade finance , insurance distribution and investment services

which has started to gain traction ( efforts are ) targeting 14-16% growth in the fee

income, focus on granular fee income profiles. PSLC is at the moment nit booked

under core fee income , this is generally back ended (as the amount is recognized later)

Stands on the earlier guidance of 55% cost income (exist quarter) of FY19 and 14% of

RoE.

With respect to asset quality:

While there has been some rise in the slippages in the mortgage segment, it is largely

transitional (some pressure on operating performance of businesses due to various

transitional challenge) and management suggest this to correct over period of time.

Farm loan waiver has impacted speed of recovery on BC-MFI business. 80% of AIB

business slippages this quarter will be related to MFI and farm loan waiver.

Floating provisions of INR440mn ( bank has never dipped into this pool, every quarter

bank make some floating provisions irrespective of the core operating performance).

There was no divergence with respect to asset quality ( based on FY16 RBI assessment).

No significant ARC sale during the quarter ( 1 account for INR20mn)

Corporate NPLs book now consist of 2-3 accounts.



Other highlights

This quarter had benefit of treasury gains ( INR210mn from sale of HTM portfolio

transferred to AFS/HFT).

5% of the portfolio is related to MFI/PTC/BCs etc (have not grown this portfolio as bank

is relatively conservative on this portfolio). Expect personal loans to be 5% of portfolio

over next few years.

INR60-65lakh is the running cost for the branch,

Focus will continue to garner granular deposits (score cards are geared towards

branch performance on SA/ CA etc). Try to keep wholesale deposits at 20% levels.

70% of the loans have ticket size of INR30mn or less.

Excess SLR is around 2%

Employee base: 5258

SRs < INR700mn.

DCB Bank


Company Description

DCB Bank is a modern emerging new generation private sector bank with 306 branches

across 19 states and 3 union territories. It is a scheduled commercial bank regulated by the

Reserve Bank of India. DCB Bank has contemporary technology and infrastructure including

state of the art internet banking for personal as well as business banking customers.

DCB Bank’s business segments are retail, micro-SMEs, SMEs, mid-Corporate, Agriculture,

commodities, government, PSUs, Indian banks, co-operative banks and Non- Banking

Finance Companies (NBFCs).

DCB Bank has deep roots in India since its inception in 1930s. Its promoter and promoter

group the Aga Khan Fund for Economic Development (AKFED) & Platinum Jubilee

Investments Ltd holds ~15% stake. AKFED is an international development enterprise. It is

dedicated to promoting entrepreneurship and building economically sound companies.

Investment Theme

While revenue traction has been softer than we would prefer, asset quality lends comfort.

Estimating >28% plus earnings CAGR over FY17-19 with operating leverage benefits, we

value DCB at 2.2x FY19E ABV for an RoE potential of 11-12%. This yields target price of

INR200. Monitorables are: 1) blip in productivity could mar revenue traction; b) adverse

impact of GST on MSME segment; and c) rising NPLs in the LAP segment.

Key Risks

Small balance sheet size renders it vulnerable to any lumpy slippages due to economic

downturn and may adversely affect bank profitability

Competition from existing players which are getting incrementally aggressive in retail

and new players when RBI issues licenses

The major risk that the bank is facing is human capital. With most of the core team

members sticking together through tough times, a unique concentration of employees

has been created. Also with new banking license there can be a huge demand for

human capital posing a risk for the bank.



Financial Statements

Income statement (INR mn)

Year to March FY16 FY17 FY18E FY19E

Interest income 16,985 20,762 24,673 29,466

Interest expended 10,790 12,791 14,552 17,284

Net interest income 6,195 7,971 10,120 12,182

Non interest income 2,205 2,495 3,010 3,530

- Fee & forex income 1,550 1,760 2,110 2,530

- Misc. income 236 282 300 400

- Investment profits 419 452 600 600

Net revenue 8,400 10,466 13,131 15,712

Operating expense 4,909 6,283 7,792 9,317

- Employee exp 2,451 3,080 3,883 4,600

- Other opex 2,459 3,203 3,909 4,717

Preprovision profit 3,490 4,182 5,339 6,395

Provisions 879 1,115 1,271 1,397

Loan loss provisions 528 728 1,011 1,187

Investment depreciation 36 (1) 10 10

Other provisions 315 388 250 200

Profit Before Tax 2,611 3,067 4,068 4,998

Less: Provision for Tax 666 1,070 1,383 1,699

Profit After Tax 1,945 1,997 2,685 3,299

Shares o /s (mn) 284 285 307 307

Adj. Diluted EPS (INR) 6.8 7.0 8.7 10.7

Growth ratios (%)


NII growth 21.9 28.7 27.0 20.4

Fees growth 22.2 13.6 19.9 19.9

Opex growth 23.8 28.0 24.0 19.6

PPOP growth 22.9 21.4 27.1 22.3

PPP growth 25.8 19.8 27.7 19.8

Provisions growth 26.5 26.8 14.0 9.9

Adjusted Profit 1.8 2.7 34.4 22.9

Operating ratios


Yield on advances 11.6 11.5 11.1 10.9

Yield on investments 7.0 7.8 7.7 7.3

Yield on assets 10.0 10.1 9.9 9.8

Cost of funds 6.8 6.5 6.2 6.2

Net interest margins 3.7 3.9 4.1 4.1

Cost of deposits 7.3 6.9 6.4 6.3

Cost of borrowings 7.3 7.2 7.0 7.0

Spread 3.3 3.6 3.7 3.7

Cost-income 58.4 60.0 59.3 59.3

Tax rate 25.5 34.9 34.0 34.0

Key Assumptions


Macro

GDP(Y-o-Y %) 7.9 6.6 6.8 7.4

Inflation (Avg) 4.9 4.5 4.0 4.5

Repo rate (exit rate) 6.8 6.3 5.8 5.8

USD/INR (Avg) 65.5 67.1 65.0 66.0

Sector

Credit growth 9.3 9.0 12.0 14.0

Deposit growth 8.6 14.0 12.0 13.0

CRR 4.0 4.0 4.0 4.0

SLR 20.8 20.0 20.0 20.0

G-sec yield 7.5 6.5 6.5 6.5

Company

Op. metric assump. (%)

Yield on advances 11.6 11.5 11.1 10.9

Yield on investments 7.0 7.8 7.7 7.3

Yield on asset 10.0 10.1 9.9 9.8

Cost of funds 6.8 6.5 6.2 6.2

Net interest margins 3.7 3.9 4.1 4.1

Cost of deposits 7.3 6.9 6.4 6.3

Cost of borrowings 7.3 7.2 7.0 7.0

Spread 3.3 3.6 3.7 3.7

Balance sheet assumption (%)

Credit growth 23.5 22.2 23.0 23.0

Deposit growth 18.4 29.2 17.2 21.9

SLR ratio 24.8 23.2 22.0 21.0

Low-cost deposits 23.4 24.3 25.3 25.9

Gross NPA ratio 1.5 1.6 1.9 1.8

Net NPA ratio 0.8 0.8 0.8 0.7

Net NPA / Equity 5.6 6.4 6.3 5.6

Capital adequacy 14.1 13.8 12.5 11.2

Incremental slippage 2.1 2.0 2.0 1.6

Provision coverage 50.6 51.1 55.3 61.3


DCB Bank

Peer comparison valuation

Market cap Diluted P/E (X) Price/ Adj. BV (X) ROAE (%)

Name (USD mn) FY18E FY19E FY18E FY19E FY18E FY19E

DCB Bank 871 21.1 17.1 2.3 2.0 11.8 11.9

Axis Bank 18,919 18.8 12.1 2.3 2.0 11.2 15.8

Federal Bank 3,771 21.7 17.4 2.1 1.9 10.6 10.9

HDFC Bank 73,467 26.9 22.3 4.7 4.0 18.2 19.0

ICICI Bank 27,023 14.7 10.7 2.3 2.0 11.9 14.9

IndusInd Bank 15,724 27.9 22.2 4.4 3.8 16.5 17.9

Karnataka Bank 909 8.7 7.2 0.9 0.8 9.6 10.8

South Indian Bank 892 14.3 7.8 1.4 1.2 8.6 14.5

Yes Bank 13,157 3.9 3.0 0.7 0.6 18.2 20.3

Median - 18.8 12.1 2.3 2.0 11.8 14.9

AVERAGE - 17.6 13.3 2.3 2.0 13.0 15.1

Source: Edelweiss research

RoE decomposition (%)


Net int. income/assets 3.7 3.9 4.1 4.1

Fees/Assets 1.1 1.0 1.0 1.0

Invst. profits/Assets 0.2 0.2 0.2 0.2

Net revenues/assets 5.0 5.1 5.3 5.2

Operating expense/assets (2.9) (3.1) (3.1) (3.1)

Provisions/assets (0.5) (0.5) (0.5) (0.5)

Taxes/assets (0.4) (0.5) (0.6) (0.6)

Total costs/assets (3.8) (4.1) (4.2) (4.1)

ROA 1.2 1.0 1.1 1.1

Equity/assets 9.7 9.0 9.1 9.2

ROAE (%) 11.9 10.8 11.8 11.9

Valuation parameters


Adj. Diluted EPS (INR) 6.8 7.0 8.7 10.7

Y-o-Y growth (%) 0.9 2.3 24.9 22.9

BV per share (INR) 61.2 68.3 84.5 95.3

Adj. BV per share (INR) 58.8 65.2 80.8 91.5

Diluted P/E (x) 26.9 26.3 21.1 17.1

Price/ Adj. BV (x) 3.1 2.8 2.3 2.0

Balance sheet (INR mn)

As on 31st March FY16 FY17 FY18E FY19E

Share capital 2,844 2,854 3,071 3,071

Reserves & Surplus 14,575 16,630 22,885 26,184

Net worth 17,420 19,484 25,957 29,256

Deposits 149,260 192,892 226,006 275,540

Total Borrowings 11,479 12,758 17,664 22,772

Other liabilities 12,762 13,006 8,536 10,450

Total liabilities 190,921 238,140 278,162 338,017

Loans 129,214 158,176 194,557 239,305

Cash and Equivalents 8,916 11,925 9,724 11,873

Gilts 39,855 47,711 53,607 62,645

Others 3,479 10,468 12,854 15,789

Fixed assets 1,978 2,321 2,140 1,941

Other Assets 7,480 7,539 5,280 6,464

Total assets 190,921 238,140 278,162 338,017

Credit growth 23.5 22.2 23.0 23.0

Deposit growth 18.4 29.2 17.2 21.9

EA growth 15.9 25.8 18.6 21.7

SLR ratio 24.8 23.2 22.0 21.0

C-D ratio 86.9 82.2 86.3 87.0

Low-cost deposits 23.4 24.3 25.3 25.9

Provision coverage 50.6 51.1 55.3 61.3

Gross NPA ratio 1.5 1.6 1.9 1.8

Net NPA ratio 0.8 0.8 0.8 0.7

Incremental slippage 2.1 2.0 2.0 1.6

Net NPA / Equity 5.6 6.4 6.3 5.6

Capital adequacy 14.1 13.8 12.5 11.2

- Tier 1 12.8 11.9 10.6 9.3



Holding - Top 10

Perc. Holding Perc. Holding

Matthews International Capital Management 4.77 Tano Mauritius India FVCI 4.27

Sundaram Asset Management 3.46 Prazim Trading & Investment 2.90

DSP BlackRock Investment Manager 2.64 Birla Sun Life Asset Management 2.60

PI Opportunities Fund I 2.57 Dimensional Fund Advisors 2.39

WCP Holdings III 1.94 Tata Asset Management 1.67

*as per last available data

Insider Trades

Reporting Data Acquired / Seller B/S Qty Traded

20 Mar 2017 Praveen Kutty Sell 73000.00

14 Mar 2017 Praveen Kutty Sell 30000.00

02 Mar 2017 Mr. Bharat Laxmidas Sampat Sell 52000.00

28 Feb 2017 Mr. Bharat Laxmidas Sampat Sell 52000.00

27 Feb 2017 Mr. Bharat Laxmidas Sampat Sell 52000.00

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

20 Mar 2017 Prazim Trading & Investment Company Pvt Ltd Buy 7912355 162.35

20 Mar 2017 Pi Opportunities Fund I Sell 7912355 162.35

*in last one year

Additional Data

Directors Data Nasser Munjee Chairman Murali M. Natrajan Managing Director & CEO

Altaf Jiwani Director Amin Manekia Director

Imran Contractor Director Iqbal Ishaq Khan Director

Chakrapany Narasimhan Director Nalin Shah Director

S. Sridhar Director Jamal Pradhan Director

Shaffiq Dharamshi Director Rupa Devi Singh Director

Auditors - Deloitte Haskins & Sells

*as per last annual report


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Allahabad Bank HOLD SU M Axis Bank BUY SO M

Bajaj Finserv HOLD SP L Bank of Baroda BUY SP M

Bharat Financial Inclusion BUY SO M Capital First BUY SO M

DCB Bank HOLD SU M Dewan Housing Finance BUY SO M

Equitas Holdings Ltd. BUY SO M Federal Bank BUY SP L

HDFC HOLD SP L HDFC Bank BUY SO L

ICICI Bank BUY SO L IDFC Bank HOLD SP L

Indiabulls Housing Finance BUY SO M IndusInd Bank BUY SP L

Karnataka Bank BUY SP M Kotak Mahindra Bank HOLD SP M

L&T FINANCE HOLDINGS LTD BUY SO M LIC Housing Finance BUY SP M

Magma Fincorp BUY SP M Mahindra & Mahindra Financial Services HOLD SU M

Manappuram General Finance BUY SO H Max Financial Services BUY SO L

Multi Commodity Exchange of India BUY SP M Muthoot Finance BUY SO M

Oriental Bank Of Commerce HOLD SP L Power Finance Corp BUY SO M

Punjab National Bank BUY SP M Reliance Capital BUY SP M

Repco Home Finance BUY SO M Rural Electrification Corporation BUY SO M

Shriram City Union Finance BUY SO M Shriram Transport Finance BUY SO L

South Indian Bank BUY SP M State Bank of India BUY SP L

Union Bank Of India HOLD SP M Yes Bank BUY SO M

RATING & INTERPRETATION

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe

within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%



Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91-22) 4009 4400, Email: [email protected]

Aditya Narain

Head of Research

[email protected]

Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services

Allahabad Bank, Axis Bank, Bharat Financial Inclusion, Bajaj Finserv, Bank of Baroda, Capital First, DCB Bank, Dewan Housing Finance, Equitas Holdings Ltd., Federal Bank, HDFC, HDFC Bank, ICICI Bank, IDFC Bank, Indiabulls Housing Finance, IndusInd Bank, Karnataka Bank, Kotak Mahindra Bank, LIC Housing Finance, L&T FINANCE HOLDINGS LTD, Max Financial Services, Multi Commodity Exchange of India, Manappuram General Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Oriental Bank Of Commerce, Punjab National Bank, Power Finance Corp, Reliance Capital, Rural Electrification Corporation, Repco Home Finance, State Bank of India, Shriram City Union Finance, Shriram Transport Finance, South Indian Bank, Union Bank Of India, Yes Bank

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 161 67 11 240 * 1stocks under review

Market Cap (INR) 156 62 11

Date Company Title Price (INR) Recos

Recent Research

17-Oct-17 Bajaj Finserv Stellar show; fairly valued; Result Update

5,354 Hold

16-Oct-17 Dewan Housing Finance

Sharp uptick in growth; stable NIMs and asset quality; Result Update

558 Buy

16-Oct-17 Federal Bank

Growth momentum sustains; stress normalises as guided; Result Update

125 Buy

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12-month period

Hold appreciate up to 15% over a 12-month period

Reduce depreciate more than 5% over a 12-month period

Rating Expected to

-

149

297

446

594

743

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

De

c-1

4

(IN

R)

One year price chart

100

125

150

175

200

225

Oct

-16

No

v-1

6

De

c-1

6

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

(IN

R)

DCB Bank


DCB Bank

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DCB Bank

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