23 May 2020
4QFY20 Results Update | Sector: Financials
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
19.8 / 0.3
245 / 61
TP: INR70 (+10%)
Asset quality deteriorates further; Outlook under watch
60% of loan book availed moratorium
Financials & Valuations (INR b)
EPS Gr. (%)
DCBB has created higher than the required provisions toward COVID-19,
which affected PAT. Business growth too moderated, further reflecting the
challenging macro environment due to the lockdown. Asset quality should
remain under watch as 60% of the bank’s loan portfolio availed
moratorium. Thus, we expect credit cost trends to remain elevated.
We cut PAT estimate for FY21/22E by 27%/29%, as we factor in higher
credit cost and moderate business growth trend. Maintain
Business growth moderates; COVID-19 provisions affect earnings
Shareholding pattern (%)
Mar-20 Dec-19 Mar-19
FII Includes depository receipts
DCBB’s 4QFY20 PAT stood at INR688m (29% YoY decline; in-line), affected
by higher provisions (INR1.2b). The bank made provisions of INR630m
toward COVID-19, which is higher than the RBI requirement.
NII growth moderated ~8% YoY to INR3.2b, led by moderation in loan
growth (7.5% YoY) and 7bp QoQ decline in margins to ~3.6%. Other income
grew ~11% YoY (18% QoQ) led by treasury gains of INR174m (+149% QoQ)
while core fee income stood muted at 2.5% YoY. Opex increased ~3% YoY to
INR2.2b, resulting in an improvement in the C/I ratio by ~330bp QoQ to
~51%. During FY20, NII/PPoP/PAT grew 10%/16%/4% YoY.
Loan growth moderated further to 7.5% YoY impacted by the lockdown in
the last few days of Mar’20 and continued sluggishness in few business
segments such as corporate banking/SME/MSME. Deposit growth too
moderated ~7% YoY to ~INR304b, led by 4% YoY decline in CASA while retail
TD grew 14% YoY. Retail TD plus CASA formed ~78% of total deposits.
On the asset quality front, fresh slippages remained elevated at INR1.5b
(2.6% annualized). As a result, GNPA/NNPA ratio deteriorated by
31bp/13bp to ~2.5%/~1.2%. PCR stood at 53.5% v/s 52.8% in 3QFY20.
Overdue accounts (where asset classification benefit was availed) stood at
INR893m, on which the bank made provisions of 10%, as per the RBI norms.
Home loans (52%), Business Loans – LAP (56%), MSME
(60%). Overall, 60% of the loan book is under moratorium as at end- Apr’20.
Highlights from management commentary
Most DCBB customers in business loans, SME, MSME and CV segments
would qualify for the government guarantee scheme.
Near-term strategy is to focus on preservation of balance sheet, reducing
operating expenses and maintaining high liquidity.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
14 January 2020