Buy DCB Bank; target of Rs 160: ICICI Securities

ICICI Securitie's research report on DCB Bank

Disbursement declined 2% YoY to INR 41.4bn. Loan growth was healthy at 3% QoQ and 19% YoY. Mortgage share stood at 45.4%, roughly equally split between home loan and LAP. Corporate book share has been declining while AIB share has been rising. Deposits growth was also healthy at 4% QoQ and 20% YoY. SA balances grew 5.5% QoQ (up 21% YoY), possibly due to staggered pricing structure, in our view. CASA share stood at 25.4% vs 26% YoY. LDR remains comfortable at 81.6% vs 82.5% YoY and 83% QoQ. We keep our loan CAGR estimate unchanged at 17% for FY24-26E.

Outlook

DCB Bank has reported weaker-than-expected Q1FY25 PAT of INR 1.3bn (up 3% YoY; 5% miss), pulled down by NIM decline and higher opex. Reported RoA declined to 82bps vs 1.0% QoQ and 94bps YoY. Business growth in terms of deposits (up 4% QoQ and 20% YoY) and loan (up 3% and 19% YoY) was strong. Despite flattish cost of deposits, NIM declined 23bps due to regulatory impact (mostly one-off) on loan yields. Business strategy under the new MD&CEO broadly remains unchanged, which is not surprising as it aims to deliver >1% RoA, 14% RoE along with doubling of balance sheet every 3-4 years. Tier 1 stands at 14.0%. We cut our earnings estimates by 6/3% for FY25/26E, taking into account weak Q1. Basis in-expensive valuation, retain BUY with an unchanged TP of INR 160, valuing the stock at 0.9x FY26E ABV. Key risk is moderation in deposits restricting growth / operating leverage.