DCB Bank Ltd. (DBL) is a small private sector bank of the country with 318 branches across 19 states and 3 union territories. DBL has a presence across various verticals such as across Retail, MSME, Agri and Corporate banking serving mainly towards self-employed clients. With the 14.2% stake, Aga Khan Fund For Economic Development SA (promoter) is the largest shareholder in the bank. DCB Bank is rated as the Best Small Bank in INDIA by Business world Magna Awards 2017. The bank has the presence in 19 states and 3 union territories in India with 46% of branches located in the semi-urban and rural areas. As of Mar’2018, DBL’s business book stood at Rs443 bn grew at a CAGR of 24.3% during FY15-FY18. NII and PAT grew at a CAGR of 25.1% and 8.7% to Rs9.9 bn and Rs2.4 bn during the same period.
DBL is witnessing strong business growth and during FY15-FY18, with advances of the bank growing by a CAGR of 24.8% and deposits by a CAGR of 23.9%. The bank is persistently diversify its loan book and skewed its risky unsecured loan book in the past couple of years towards mortgage, which now comprises ~40% of total credit. The retail segment accounted for 53% of total credit book followed by corporates at 17%, MSME at 12% and agriculture at 18%. During the year FY18, retail loans grew by 26.1% mainly driven by mortgage loans and corporate credit expanded at 36.8%.
As per the management, 86% of mortgage accounts are from the self-employed segment with an average ticket size of Rs 3.5mn and the segment will continue to continue to dominate the loan book (>35%). Loans against property (LAP) comprises 70% of mortgage credit.
The management has strategized to create a diversified and largely secured advances portfolio in order to limit the unsecured and lumpy exposure. It will focus on tier 2 and tier 6 locations for retail segment growth and will continue selective lending to high rated corporate loans.
Some of the govt’s initiative to bring informal sector to organized one will create high business growth for MSMEs which in turn will result in enhance credit for them by lenders.
DBL has been remained able to manage the stable assets quality with Gross Non Performing Assets (GNPA) stood at 1.8% and NNPA at 0.72%, better than close peers. DCB’s provision coverage ratio (PCR) excl. tech. write-off at 60% also provides comfort on assets quality front.
The stock at the CMP of Rs.165/- trades at about 1.99x which is reasonable given the increasing exposure to secured retail segment and high rated corporate. The retail focus is expected to provide stable assets quality for the bank. We maintain Buy on the stock for long-term investors.