DCB Bank – Stock Analysis

Detailed Analysis of DCB Bank – Q4 FY2019 Results

Introduction

In this article, we are going to discuss the DCB bank stock analysis. We will analyze the stock in accordance with the key financial indicators, bank’s deposits and advances mix, Q4 FY2019 financial performance of the bank etc.

DCB Bank – Stock Analysis

Company Profile

• Development Credit Bank (DCB), incorporated in 1918, is one of the emerging and new generation private sector bank in India. It is a scheduled commercial bank regulated by the Reserve Bank of India.
• DCB Bank Limited 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 14.93% stake. 
• It is professionally managed and governed. DCB Bank has contemporary technology and infrastructure including the internet banking for personal as well as business banking customers.
• The Bank’s business segments are Retail, micro-SMEs, SMEs, mid-Corporate, Microfinance Institutions (MFI), Agriculture, Commodities, Government, Public Sector, Indian Banks, Cooperative Banks and Non Banking Finance Companies (NBFC). DCB
• Bank has 333 branches across 19 states and 3 union territories with more than 6,00,000 active customers.

Key Financial Indicators of Bank

1. Current Market Capitalization is around Rs.7,000 Crore, It is a small cap company.
2. Price-to-Earnings Ratio = 21.15
3. Net Interest Margin (NIM) = 3.83%
4. Yield On Advances = 11.3%
5. Cost of Funds = 6.75%
6. Return on Equity = 13.69%
7. Return on Asset = 1.1%

Deposits & Advances

Total Deposits

• Total Deposits with Banks is around Rs.28,500 Crores out of which :
  1. Residential Retail Term Deposits = Rs.15,832 Cr (Around 55%)
     • In retail term deposits, retail FDs are included. In this, DCB bank prefers the small FDs rather than bulk FDs of higher amounts.
  2. CASA Deposits = Rs.6,900 Cr (Around 24%)
     • CASA ie. Current Accounts and Savings Accounts deposit is considered as the best deposit for any bank. It is bacause CASA is a low cost deposit.
     • Different banks offer different interest rates for savings account ranging from 4% to 7%. And no interest is offered on current account deposits. Thus, maintaining considerably large CASA deposits is always beneficial for the banks.
     • In the above mentioned 24% contribution of CASA in Total deposits, NRIs CASA deposits are also included.
  3. Inter-Bank FDs =15%
     • Many banks open fixed deposits in the other banks on account of comparatively higher interest rates offered.
     • DCB bank is having 15% of the total deposits as Inter-bank FDs.
  4. NRI Deposits (FDs) = 6%
     • NRI term deosits (FDs) are around Rs.1,760 Cr. It is almost 6% of total deposits.
     • The bank is focusing on increasing the % growth in NRI FDs. Becuase, there is No tax on NRE FD interest for NRIs and therefore, the bank believes NRI FDs to be a stable kind of depoists to grow further.
     • Thus, the bank is planning to grow NRI FDs with 25% to 30% growth every year with a focused approach in order to increase the overall NRI FD base.

Laons & Advances

• Loans and Advances are the main assets of the bank.
• Bank’s net advances is around Rs.23,570 Crores.
• Just like total deposits, the bank has diversified its Loans and advances book very well.
• We can see from above chart of bank’s advances mix, only 13% of the total advances are for corporate lending and the remaining 87% of total advances contribute to the Retail lending for different segments such as mortgages, SME & MSME, Agri Business, Commercial Vehicle, Construction Finance, Gold Loan etc.
• This shows us that how focused is the bank for dicersifying and growing its Retail loans segment rather than offering advances/ loans to the corporates.
• As a result, the chance/probability of bad loans decreases with more retail loans compared with corporate loans and consequently the NPA figures of the bank are also low.
• Gross NPA = 1.84%, while Net NPA = 0.65%

DCB Bank Portfolio : Unique Business Model

• Small businesses and Self-Employed are the key customers of the bank.
• Self-employed customers contribute to around 80% of CASA and Term Deposit account of the bank.
• Also, 80% of the bank’s accounts is having self-employed portfolio.

Q4 FY2018-19 Key Financials

• The Bank earned Net Interest Income of INR 301 Cr. as against INR 264 Cr. as compared to last year.
• Operating Profit of INR 185 Cr. over INR 142 Cr. for the same period as compared to last year.
• The Bank’s Profit After Tax was at INR 96 Cr. in Q4 FY 2019 as against INR 64 Cr. in Q4 FY 2018, an increase of 50%. The estiemated PAT for next 4 quarters is around Rs.400 Cr.
• As compared to Q4 FY 2018, Cost Income Ratio has improved from 59.38% to 53.71% (by 5.67%).
• Return on Equity (Annualised) was at 13.69% in Q4 FY 2019 as compared to 10.20% in Q4 FY 2019 and 12.64% in Q3FY 2019.
• As compared to Q4 FY 2018, Cost Income Ratio has improved from 59.38% to 53.71% (by 5.67%).
• As on March 31, 2019, the Bank grew Deposits by 18% to INR 28,435 Cr. Retail CASA & Retail Term Deposits continued to provide a stable resource base to the Bank.

Key Shareholders of DCB Bank

• Almost all the fund houses have considerable amount of % holding for DCB bank in their equity portfolios.
• It is all because the DCB bank is fundamentally very strong and all the top fund managers of these fund houses have confidence regarding the furure growth of the bank’s business with its unique business model employed in bank’s portfolio.