Shares of DCB Bank fell over 6 percent on Thursday after the lender witnessed a decline in its net interest margin (NIM) for the quarter ended December (Q3FY24). Its NIM for Q3FY24 declined sharply 21 bps QoQ to 3.48 percent.
The lender posted an 11.2 percent year-on-year (YoY) rise in its net profit to ₹126.6 crore for the third quarter of FY24, as against ₹113.9 crore in the same period last year. However, sequentially, the net profit was flat from ₹126.79 in the September quarter (Q2FY24).
Meanwhile, the bank’s net interest income (NII) registered a growth of 6.3 percent YoY to ₹474 crore versus ₹446 crore in the same quarter last year. Sequentially, NII was little changed from ₹476 crore in Q2FY24.
The stock fell as much as 6.11 percent to its intra-day low of ₹135.10. It is now over 17 percent away from its 52-week high of ₹163.40, hit earlier this month, on January 8, 2024. Meanwhile, it is still trading almost 40 percent higher than its 52-week low of ₹96.70, hit on March 16, 2023.
The stock has advanced over 17 percent in the last 1 year and just 2.5 percent in January till date.
On the asset quality front, the lender’s gross non-performing asset (NPA) ratio for the quarter under review stood at 3.43 percent, compared to 3.36 percent in the previous quarter (Q2FY24). Its net NPA ratio improved QoQ to 1.22 percent, down from 1.28 percent in the September quarter.
The capital adequacy ratio (CAR) for the lender, as of December 31, 2023, stood at 15.72 percent.
Murali M. Natrajan, Managing Director & CEO of DCB Bank, commented on the results, stating, “We are pleased with the sustained growth in our net profit and net interest income. Our focused approach on asset quality is reflected in the marginal improvement in NPA ratios. The bank remains committed to maintaining a robust financial position and delivering value to our stakeholders.”
Should you buy?
Post the earnings, brokerage house Axis Securities has a ‘hold’ call on the stock with a target price of ₹155, indicating an upside of 15 percent.
“The management’s optimism and confidence around doubling the balance sheet over the medium term is encouraging. However, near-term challenges on NIMs, coupled with higher Opex ratios are the bank continues to build capacities are weighing on the bank’s profitability and limiting RoA to 0.9 percent. Considering margin headwinds in the near term and only a gradual improvement in cost ratios, we trim our earnings estimates by 4-6 percent over FY24-25E,” it said.
On the other hand, brokerage Prabhudas Lilladher has a ‘buy’ call on the stock with a target price of ₹160, indicating an over 18 percent upside.
“DCB Bank saw a mixed quarter with core PPoP broadly in-line but NII down 1.4 percent due to an 8 bps miss on NIM that was offset by higher fees. Slippages were higher led by mortgages, although recoveries were stronger. Despite a tight liquidity environment, the bank maintained its growth guidance of 18-20 percent since its customer base is not facing major challenges. We trim loan CAGR over FY24-26E by 1 percent to 18 percent. While NIM could remain under pressure for 1-2 quarters, the bank expects NIM to revert back to a normalized level of 3.65-3.70 percent,” explained PL.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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Published: 25 Jan 2024, 12:49 PM IST