DCB Bank plunges 14% on disappointing June quarter results

Shares of DCB Bank plunged 14 per cent to Rs 205 in Wednesday's early morning trade on the BSE after the private sector lender reported a sub-par performance in June quarter (Q1FY19) led by decline in loan growth, sequential rise in fresh slippages and non-performing assets (NPAs), and continued pressure on margin.

The bank’s loan growth of 13 per cent year-on-year (YoY) in Q1FY19 was the slowest in the past five years. The gross non-performing assets (NPAs) ratio - bad loans as a percentage of gross advances - rose to 1.96 per cent against 1.86 per cent in the year-ago quarter. Net NPA expanded to 0.81 per cent during June quarter as compared to 0.72 per cent in the corresponding quarter last year.

The bank’s net interest margins (NIMs) were under pressure and declined 0.23 bps YoY and 11 bps QoQ to 3.67 per cent in Q1FY20 led by rise in cost of funds and muted loan growth.

Q1FY20 saw higher slippages (2.5 per cent annualized) largely due to agri (AIB) and CV portofolio where the bank has been relentlessly pursuing recoveries and collections. With its share of secured lending north of 90 per cent, analysts at SBICAP Securities expect DCB to sustain its superior asset quality and lower credit costs.

“With NIMs closer to the top-end of the band and credit costs already the best-in-class, an improvement in ROAs is premised on DCB’s ability to raise fee income intensity and enhance operating efficiencies,” the brokerage firm said in company update with ‘hold’ rating on the stock and target price of Rs 210.

“While the Management’s focus on low-ticket granular loans and efforts towards cost rationalisation will continue to aid its asset quality and returns over the time, we don’t rule out current growth and asset quality concerns to weigh on its earnings profile in the interim,” analysts at Reliance Securities said in result update.

Thus far in calendar year 2019, the stock has outperformed the market and rallied 42 per cent, as compared to a 8.5 per cent rise in the S&P BSE Sensex. It hit an all-time high of Rs 245 on June 25, 2019.

At 09:44 am, DCB Bank was trading 12 per cent lower at Rs 209, against 0.04 per cent rise in the benchmark index. The trading volumes on the counter more than doubled with a combined 4.8 million shares were changing hands on the BSE and NSE so far.