DCB Bank Q2 FY20 Result Analysis

Detailed Analysis of DCB Bank Q2 FY20 Result and Valuation Update

Introduction

In this article, we are going to discuss the DCB bank stock analysis. We will analyse the DCB bank stock in accordance with its Q2 FY20 result, key financials and valuation update.

DCB Bank Q2 FY20 Result Analysis

The company profile of the bank is already stated in out earlier article of DCB Bank Stock Analysis. Lets discuss the Q2 FY2019-20 result of the bank in detail here.

Q2 FY2019-20 Result Update

1. Net Interest Income is increased by 11% YoY due to 16% loan growth (excluding corporate banking)
2. Non-Interest Income growth is 38% YoY as well as 16.8% QoQ mainly because of :
   • Excellent Profits on  Revaluation / Sale of investments in Q2 FY20 (Growth : 57% QoQ and 7 times YoY)
   • Rise in Fees & Commission Income (6% QoQ)
3. Operating profit is increased by almost 26% YoY on account of :
   • Increase in Balance sheet size by 13.8% YoY and 2% QoQ
   • Improved efficiency of bank (Improved cost to income ratio)
4. Net profit rise of almost 24% YoY to Rs.91.4 Cr from Rs.73.4 Cr and 12.7% QoQ is mainly on account of :
   • Improved operating profit
   • Comparatively lowered provision coverage ratio
5. Net Interest Margin is stable YoY and remained at 3.67% while it is slightly decreased QoQ from 3.83% in last quarter.

Balance sheet Summary & Key Ratios

Balance sheet Size QoQ Trend

• We can see there is a continuous rise in the overall balance sheet size of DCB bank in QoQ from Q1 FY19.
• In Q2 FY20, the balance sheet size of the bank is Rs.37,018 Cr, increased by almost 13.8% YoY and 2% QoQ.

Advances Mix Q2 FY2019-20

• Total advances of the bank has increased 12% YoY to Rs.24,797 Cr in Q2 FY20 from Rs.22,068 Cr in Q2 FY19. The above pie chart shows that DCB bank is having a very good diversification in its loan book.
• The 5 key constituents of advances/ loans in Q2 FY20 are :
  • Mortgage = 41%
  • Agri Business = 20%
  • SME + MSME = 12%
  • Corporate Banking = 12%
  • Construction Finance = 7%
• Thus the bank has diversified the risk very prudently as far as advances mix is concerned.

Deposit Mix Q2 FY2019-20

• The total deposits are increased by 12% to Rs.29,363 Cr from Rs.26,168 Cr last year. The deposit mix in Q2 FY20 is given in the above chart.
  1. Residential Term Deposit = 57%
  2. CASA Deposit = 23%
  3. Interbank Term Deposit = 12%
  4. NRI Term Deposit = 7%
• CASA Ratio reduced to 23.2 from 24.3% last year and 24.5% last quarter. It is because :
  • Though Total deposits have grown by 12% YoY and 2% QoQ, the contribution of CASA deposits in the total deposits was not with the same growth rate.
  • The share of Time deposits is higher 64% as compared to 61% last year and 62% last quarter. It indicates total deposits are increased mainly on account of Time deposits.

Cost to Income Ratio QoQ Trend

• The Cost to Income Ratio for Q2 FY20 is improved to 55.51% from 58.88% in Q2 FY19 and 57.46% in Q1 FY20.
• Cost to income ratio of any bank basically tells how much cost is incurred to generate operating income of Rs.100 for the bank.
• The improved cost to income ratio of HDFC bank in Q2 FY20 indicates :
  • Rise in efficiency
  • Increased profitability as compared to Q2 FY19 & Q1 FY20

Asset Quality Q2 FY2019-20

• In Q2 FY20 Asset quality is deteriorated subsequently YoY as well as QoQ.
• That is – Gross NPA and Net NPA ratios have increased in Q2 FY20 (2.09% & 0.96%) as compared to Q2 FY19 (1.84% & 0.70%) due to exposure to the bad loans post NBFC crisis.
• In spite of rise in NPA numbers, the provision coverage ratio of the bank is decreased to 73.09% in September quarter from 76.82% last year (Sept-18) and 75.59% last quarter (June-19).

Gross NPA Mix

• From the above Pie-chart we can analyse the various sectors and their exposure to the Gross NPA mix. The deterioration in the asset quality is mainly on account of 4 heads :
• Mortgage NPAs % in Gross NPA Mix is increased to 39% in Q2 FY20 from 37% last year same quarter.
• SME + MSME NPAs % in Gross NPA Mix is also rose significantly from 9% in Q2 FY19 to 14% in Q2 FY20.
• Agri business has also impacted adversely with the NPA % rise from 19% to 26% to 20%.
• Due to the slowdown in Automobile sector, the NPAs % from commercial vehicle segment is doubled in one year from 7% in Q2 FY19 to 14% in Q2 FY20.

Valuation Update

• The current market capitalization of the DCB bank is Rs.5,670 Cr, while current share price is Rs.182.
• As far as Price to Earnings ratio (PE ratio) is concerned, the current PE ratio of the bank is 16.07.
• The historical average PE ratios are :
  • 3 years PE = 18.92
  • 5 years PE = 17.03
  • 10 years PE = 19.47
• It shows that the stock is currently trading at a discounted valuation when compared with its historical PE ratios.