DCB Bank Shares Crack 18% as Q1 Earnings Trigger Downgrades by Brokerages

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posted on 5 years ago — updated on 1 second ago

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DCB Bank’s profit grew by a lower-than-expected 17% to Rs 81.1 crore during the June quarter, while net interest income increased 11.7% to Rs 304.8 crore compared with a year ago.

DCB Bank Ltd shares cracked as much as 18% in intraday trade on Wednesday, July 17, after the lender reported a weak set of earnings for the quarter ended June on the back of weak credit growth, elevated provisions and deteriorating asset quality.

At 3:11 pm, DCB Bank shares were trading at Rs 199, down 16.8%, on BSE after hitting an intra-day low of Rs 196.

DCB Bank’s profit grew by a lower-than-expected 17% to Rs 81.1 crore during the June quarter, while net interest income increased 11.7% to Rs 304.8 crore compared with a year ago. Asset quality at DCB Bank slid to the worst in the last 13 quarters, with gross non-performing asset ratio increasing by 12 basis points sequentially to 1.96% and net NPA ratio jumping 16 basis points to 0.84%.

Provisions for bad loans increased to Rs 40.6 crore in the June quarter compared with Rs 33.2 crore in the year-ago quarter and Rs 34.8 crore in the previous quarter.

Provision coverage ratio declined to 75.6% compared with 78.8% in the previous quarter, while fresh slippages stood at Rs 145.4 crore for the June quarter as against Rs 98.5 crore in the March quarter.

Brokerage house Emkay Global maintained its ‘sell’ rating on the DCB stock with a target price of Rs 170, mainly due to deteriorating asset quality, weak liability profile and expensive valuations for a sub-optimal return on assets of 1%.

“DCB reported a dismal set of results with a profit miss, mainly due to a further deceleration in credit growth/NIMs (net interest margins) and subdued fees,” Emkay said.

Another brokerage house JM Financial Institutional Securities downgraded the DCB Bank stock to ‘hold’ with a target price at Rs 230, saying that the bank may see headwinds over the next couple of quarters with regard to growth, margin and possibly asset quality. The brokerage has also cut earnings per share (EPS) estimates for the bank by 11-16% for FY20-21.

“DCB Bank’s Q1FY20 profits at Rs 81.1 crore were well below our estimates driven by a miss on the top line. NIM declined by 11 bps q-o-q as the bank focused on raising retail term deposits, as well as due to the higher cost on long-term borrowings raised in mid-FY19,” JM Financial said.