*DCB Bank - Strategic decision to drive ROE to lower levels*
Strategic changes / decisions: DCB Bank reported its 2QFY16 numbers which were below expectations at `369m. However, the key highlight of the quarter was the strategic decisions / changes taken by the management. Key announcements are: n Install over 150 new branches in the next 12 months (160 branches as on 30th September 2015). Earlier the management had indicated to add 25-30 branches every year. Overall branches to rise over 300 by December 2016. We believe this will have a significant negative impact on the P&L of the bank.Branch expansion would be concentration on Tier 2 to Tier 6 locations. n Invest heavily in customer facing and frontline enabling technologies. This we believe, will further impact the cost to income ratio of the bank which is already amongst the highest in the industry. *Valuation; downgrade to Sell.* The above decisions will impact both the return and profitability ratios. As per the management, the profit of FY16 will get impacted by `90-150m, FY17 by`500-650mn and FY18 by `200-350m on account of the above decision. We believe the ROA and ROE of DCB will range of 50-60bps and 6-9% respectively. Cost to income ratio could rise to 65-70% for the next 3 years leading to a significant downward revision in our estimates. *Hence, we downgrade the stock to Sell.* *Results.* DCB's Q2FY16 PAT was below our expectations at `369 m (down 10.1% YoY& 21.2% QoQ) led by lower treasury income and higher provisions. PBT ex-trading income is up 22% yoy and 19% qoq to `512m. Cost to income ratio was 61% during the quarter. Asset quality deteriorated with gross NPA up by 9% to `2.2bn. Business growth was strong with 27% yoy and 7% qoq growth in advances and 24% yoy and 2% qoq growth in deposits. Margins remained strong at 3.79% during the quarter though the same would come under pressure while we move toward the fourth quarter and the pressure of priority sector lending jumps in. -- Kindly email stock reports at STOCKRESEARCHER@googlegroups.com For sharing knowledge -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no guarantee for the genuineness of the same."ANY member of this forum doesnt prepare or publish any research report; or ii. provide research report; or iii. make 'buy/sell/hold' recommendation; or iv. give price target; --- You received this message because you are subscribed to the Google Groups "Niftyviews.com" group. To unsubscribe from this group and stop receiving emails from it, send an email to stockresearcher+unsubscr...@googlegroups.com. For more options, visit https://groups.google.com/d/optout.
