After delivering strong results in previous quarters DCB Bank reported disappointing numbers in Q2FY16. Due to higher provisioning and higher tax outgo, PAT fell by 10 per cent & 21 per cent to Rs.36.9 crore y-o-y & q-o-q respectively in Q2FY16.
Even the asset quality marginally worsened as gross non-performing assets increased by 9 per cent, though in percentage terms it was stable at 1.99 per cent on sequential basis.
However, net interest income grew by 27 per cent to Rs.150 crore y-o-y in Q2FY16. Business growth was strong with 27 per cent y-o-y and 7 per cent q-o-q growth in advances and 24 per cent y-o-y and 2 per cent q-o-q growth in deposits during the quarter.
We had initiated coverage on the stock with ‘buy’ rating at Rs.105 for a target price of Rs.131 which was achieved thereafter. However with change in the business strategy of aggressive branch expansion resulting in lower profitability led to a significant correction in stock price.
We believe the proven track record of the management to deliver results in tough environment going ahead. However, in the near term, we expect the stock to remain range bound and maintain ‘buy’ rating on the stock for revised target of Rs.113 (revised from Rs.159 in Q1FY16).
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