INSUBCONTINENT EXCLUSIVE:
Anand Rathi has a hold call on DCB Bank Ltd
with a target price of Rs 200
The current market price of DCB Bank Ltd
is Rs 159.3 Time period given by the brokerage is a year when DCB Bank Ltd
price can reach defined target
DCB Bank Ltd., incorporated in the year 1995, is a banking company (having a market cap of Rs 4955.03 Crore)
the strategy to not compromise on margins) along with policy changes now
The stock has already corrected by over 30% from its peak and trades at EV/EBITDA of 10.1x and P/E of 18.5x its FY2020 numbers
We downgrade the stock to Hold with a price target of Rs
120 (20x its FY2020 earnings estimates), given the limited upside and near-term growth pressure.
Strong headwinds in NIM and Treasury income
The credit and deposit book augmented over 30% y/y with stable asset quality
We believe, however, that the positives have already been priced in and, hence, retain our Hold rating.
DCB likely to miss FY19 exit 14% RoE
Management maintained that it is targeting a 14% exit RoE for FY19
However, we believe it would be difficult for the bank to achieve this due to a) the rising cost of funds, b) lower Treasury income and c)
high, although declining, operating expenses.
Pressure on yields brings down NIM
NIM came at 3.9%, down 26bps q/q, on account of a sharp decline in the yield on advances (down 20bps sequentially)
Due to the expected higher cost of funds, we expect NIM to be under pressure in the medium term, but high credit growth and a high
concentration of the granular retail portfolio would support margins
We expect a 10bp decline in NIM from current levels through FY19-20.
Headline asset-quality parameters stable
We expect DCB to maintain stable asset quality over FY19-20, aided by its well-diversified granular loan mix
We model ~1.7% slippage through FY19-20 and forecast ~0.8% net NPAs in FY20
This implies a ~1.87x P/ABV multiple on its FY20e book
Risks: Lower-thanexpected loan-book growth, elevated slippages from the mortgage book.
