Antique | DCB Bank 2QFY24 result update – 231101

Antique | DCB Bank 2QFY24 result update – 231101

In-line earnings; low credit cost, PCR declines QoQ

DCB Bank (DCB) reported in-line PAT of INR 1.3 bn (13% YoY; RoA of 0.9%). NII grew 16% YoY (in-line) and NIM contracted by 14 bps QoQ at 3.7%. Fee income growth was strong at 29% QoQ which along with contained opex (14% YoY) led to core PPP growth of 25% YoY (9% higher than estimate; 1.4% of average assets). Slippage ratio was elevated at 5% (vs. 4.6% in 1QFY24) as there were additions from the restructured pool into NPLs. Net slippages was at 1.4% (vs. 1.8% in 1QFY24) as upgrades during the quarter were higher. Credit cost remained contained at 27 bps, however, PCR declined 1.3% QoQ (-5.4% in 1HFY24) to 62.8%. Loan growth was healthy at 5% QoQ/ 19% YoY and deposits grew 23% YoY/ 6% QoQ led by TD growth of 7% QoQ. While NIM has moderated and credit cost can increase from its lows, operating leverage benefits would help the bank to post a RoA of 0.9%. We largely maintain our FY24/ 25 earnings estimates and introduce FY26 estimates. We maintain BUY with an unchanged TP of INR 150 (0.8x 1HFY26 BV) and before we raise the valuation multiples would wait for the gross slippages to subside.

Investment Summary

Having gone through challenging times in the past two years, the bank is coming back on track towards normalization; however, gross flow of slippages remains high, which is still not comforting and we would keep monitoring. NIM has come off from its peak of 4% to 3.7% and credit cost which is running at its low can gradually rise; operating leveraging benefits to help the bank report RoA of 0.8x 1HFY26 BV drives and RoE closer to 13%. Healthy capitalization (Tier I of ~15%) and low valuations of 0.7x FY25 BV drives our BUY rating.