Stock picks: Should you buy DCB Bank, Hathway Cable & Datacom, Federal Bank shares? Here is analysis
DCB Bank (DCB) reported weaker-than-expected Q1FY20 PAT of Rs 811 million due to softer revenue traction.
Making money from the share market is not easy. The mine of information help investors takes the right decisions to minimise loss or make money from the trade. Big investors have resources to get the right information and market trends. But the retail investors are in the disadvantageous position when it comes to market information. Here is the analysis of brokerage Edelweiss on DCB Bank, Hathway Cable & Datacom, and Federal Bank stocks:
DCB Bank (DCB) share (HOLD)
DCB Bank (DCB) reported weaker-than-expected Q1FY20 PAT of Rs 811 million due to softer revenue traction. Key highlights: a) Below-trend loan growth (run-down in corporate portfolio) along with continued pressure on net interest margin (NIM) kept net interest income (NII) growth below average at sub-12 percent (>20% earlier) and is a key variable. b) Slippages rose to 2.5 percent (2 percent run rate over six quarters), largely driven by the agri and commercial vehicle segments. The only silver lining is below trend opex (operational expenses) growth (up 5 percent YoY), which indicates operating leverage benefits have started flowing in, said brokerage Edelweiss. It said cost-income ratio remains high (~60 percent), and hence sustained improvement is key. We believe pressure on NIM along with high-cost ratios will translate into sub-par RoE (14–15 percent by FY21E), implying limited upside. Maintain ‘HOLD’ with a target price of Rs 219.
Hathway Cable & Datacom share (HOLD):
Hathway Cable & Datacom’s (Hathway) standalone Q1FY20 performance continued to remain weak. While revenue growth remained muted, in line with our expectation, EBITDA declined 10 percent QoQ and EBITDA margin contracted 340 bps QoQ due to higher content cost and employee expenses. Key highlights: (i) broadband ARPU declined 2 percent to Rs 650; (ii) marginal rise in subscriber base to 0.84mn (30k QoQ net addition); and (iii) reported profit jumped to Rs 195 million on Rs 577 million other income, the brokerage said. "We are discontinuing our coverage on the stock. Our last rating was ‘HOLD’ with target price of Rs 33."
Pressure on ARPU and slow subscriber growth key concern
Hathway’s broadband revenue increased 1 percent QoQ and 3 percent YoY, largely due to the ARPU downtrend – Rs 650 in Q1FY20 (INR662 in Q4FY19) and weak growth in net subscriber addition—subscriber count stood at 0.84 million in Q1FY20 against 0.81 million in FY19. Falling data costs, rising smartphone usage and digital infrastructure are risks to fixed broadband players, the report said. The broadband business reported PAT of Rs 195 million, bolstered by other income of Rs 577 million. After the open offer, Reliance holds 72 percent stake in Hathway. Public shareholding fell from 54.5 percent to 5.91 percent after the open offer.
Federal Bank share (BUY)
The Q1FY20 earnings of Federal Bank show steady growth in its core operating performance (ex-treasury)—up 20 percent YoY. Key highlights: a) Slippages rose a tad to 1.6 percent (1 percent in Q4FY19), largely due to higher retail slippages (mainly in Kerala). b) Credit cost contained at 63 bps with FY20 guidance maintained at 55–60 bps (factoring in stressed groups), indicating a steady improvement. c) Loan growth of 19 percent YoY along with sustained NIM supported core profitability, up 20 percent YoY. Core performance is largely steady, but volatility in asset quality remains a key concern, the brokerage said. The bank's limited stress baggage, growth tailwinds and healthy tier 1 (13 percent) lend comfort. Rolling forward the valuation, we are raising the target price to Rs 134 (from Rs 128). Maintain ‘BUY.’
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