DCB Bank Ltd. share price target

DCB Bank reported in-line Q2FY24 PAT at INR 1.27bn (flattish QoQ/up 13% YoY) driven by ~16%/15% YoY rise in NII/PPOP while headline GNPA/NNPA inched up QoQ. Tier-1 stands healthy at 14.3%. Recovery in loan growth (?18% YoY for 4th consecutive quarter) appears well entrenched, though improvement in cost ratio should be gradual.

Initiating Coverage Report

Expect a strong 18% credit CAGR over FY23-FY25 (1.4x industry growth), supported by a better portfolio mix

We recommend a BUY rating on the stock with a TP of Rs 131, implying an upside of 10% from CMP.

DCBB reported a weak performance led by sequential decline in NII and PAT. Margins were declined sharply by 35 bps QoQ, Slippages was elevated for the quarter leading to higher credit cost during the quarter. However, bank continued its business momentum by registering strong loan growth of 19% YoY and deposit growth of 23% YoY.

We maintain our BUY recommendation on the stock.

DCB Bank (DCB) has reported lower than estimated Q1FY24 PAT at INR 1.27bn (up 31% YoY, down 11% QoQ) due to lower other income, while asset quality disappointed. Annualised RoA stood at 0.94% for the quarter. It has made hefty investment in capacity (headcount and branches) and there is scope to improve cost efficiency in the medium term.

The stock is currently trading at an attractive valuation of 0.7x FY25E ABV and we value the stock at 0.9x FY25E ABV to arrive at a target price of Rs 150/share. The TP implies an upside of 21% from the CMP. We reiterate our BUY recommendation on the stock.