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  • Company update: DCB Bank — Add — TP Rs 205

    Publish Date: 18th July, 2018

    NIM comes under pressure

    DCB saw a 7% yoy growth in revenues but the bank faces two headwinds in the shape of under-pressure net interest margin (NIM) and falling treasury income.

    Key Highlights

    • The bank’s net interest margin (NIM) has dipped by 15 bps qoq, which may adversely impact the the bank’s return on equity (RoE) target in the fourth quarter.
    • The bank saw its net interest income (NII) grow by 17%. This was primarily due to solid loan growth of 31% yoy.
    • The current account, savings account (CASA) ratio remains stable but its overall growth was on the lower side at 20%, which is 11% less than last year’s corresponding period.
    • The loan against property (LAP) has dropped to 19% but fears of the non-performing loan (NPL) ratio spiking in future still remain.
    • Falling bond prices have affected the bank’s treasury income, putting more pressure on short-term performance.

    Valuation & outlook

    The bank’s NIM troubles are unlikely to abate. We foresee the NIM to drop a further 50 bps from FY2018-21E. The positives are that the bank’s CASA ratio will improve by 24% CAGR growth, loan growth will be higher than industry average and the earnings will improve by 25% CAGR by FY2021E.

    Overall, the bank’s progress seems to be stable and we are comfortable to keep an ADD rating.

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