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).
Investment rationale by Anand RathiALL has seen significant correction lately on account of two reasons losing market share (in line with 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 overshadowed DCBs otherwise strong performance.
The credit and deposit book augmented over 30% y/y with stable asset quality.
We expect the banks focus on improving productivity to gain traction and gradually better its profitability in the medium term.
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 target.
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.
Valuation.
Our Apr19 target of Rs 200 is based on the two-stage DDM model.
This implies a ~1.87x P/ABV multiple on its FY20e book.
Risks: Lower-thanexpected loan-book growth, elevated slippages from the mortgage book.