DCB BANK LTD -Q3 FY17 DCB BANK LTD reported stellar third quarter results despite demonetization with PAT, NII, PBT, Advances & Deposits all growing in double digits. PAT for the December quarter stood at Rs. 513 Mn compared to Rs. 412 Mn same period previous year rising 25% YOY. Net Interest Income, difference between interest earned and expended was at Rs. 2095 Mn in the current quarter against Rs. 1605 Mn corresponding quarter previous year, expanding 31% YOY. Net Interest Margin reported at 3.95% seems to be stable in a demonetization hit quarter. NPA ratios have improved both yearly and sequentially in the current December quarter. Gross NPAs as a percentage of Gross Advances improved 43 basis points YOY at 1.55%. Net NPAs as a percentage of Net Advances was reported at 0.74% in the current Q3 FY17 against 1.12% same period previous year recovering 38 basis points YOY. One basis point is 0.01%. Provisions & contingencies increased 45% YOY at Rs. 305 Mn vis-à-vis Rs. 210 Mn in Q3 FY16. Double digit growth was visible in all business segments except corporate banking which contributes 12% to total revenues. Retail & Treasury rose 22% & 13% accounting 64% & 23% respectively in the current December quarter. Other banking business growing 2.5 times YOY was 1% of revenues. CASA ratio at 25.85% jumped 394 basis points YOY due to demonetization impact. CASA deposits increased from Rs. 32175 Mn in Q3 FY16 to Rs 48709 Mn in current December quarter, jump of 51% YOY. Other income or non interest revenue accounting 10% of the total income of the bank rose at 36% YOY at Rs. 641 Mn against Rs 472 Mn same period previous year. Deposits outpaced Advances moving at 34% yearly and 7% QOQ. Advances also grew at a healthy yearly rate of 24% though sequential growth was dismal at 1.03% in the current December quarter. Cost income ratio of bank improved to 59.42% in the current December FY17 against 60.07% corresponding quarter previous year.

 DCB Bank with high Net Interest Margin, stable NII and growing profitability is marching towards sustainable growth for long term. We recommend BUY with PE multiple of 22.41x FY17E & 19.06 x FY18E for medium and long term investment with a target price of Rs. 278.  

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