Centrum's research report on DCB Bank
We retain Hold on DCB Bank (DCBB), with TP at Rs 115. Q2’17 results were in-line with our estimates on both revenue / profitability front. Loan growth remains intact while asset quality risk remains limited. Branch expansion strategy is moving in the right direction with limited impact on overall costs. Continued investment towards IT / infrastructure will see costs remain elevated over FY17-18E. Drawing parallels from past experience, we however do not foresee any major risk. In this scenario, returns profile will remain low in the near term, with RoE inching towards 12% levels only by end-FY18E. Valuations at 1.7x FY18E ABV limit upside.
We have revised our estimates marginally on growth front. We like DCBB for the consistency in earnings, focused approach towards growth, asset quality and capital position. Moreover, expansion strategy is well on track. Investments therein, will see costs remain higher, thus impacting overall RoAs profile. RoE is set to inch towards 12% levels by end-FY18E. Valuations, under such situations at 1.7x FY18E ABV limit upside. Retain Hold, with TP at Rs115. Prolonged period of high costs and lower revenue growth remain near-term risks.For all recommendations, click here
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