Hold DCB Bank; target of Rs 130: ICICI Direct

ICICI Direct's research report on DCB Bank

DCB Bank has posted mixed set of numbers overall for Q3FY21 with stable margins and controlled opex. However, asset quality has weakened, with increase in restructuring guidance and elevated credit cost expected. For the bank, headline asset quality numbers looked sanguine, as GNPA and NNPA ratio declined from 2.27% and 0.83% to 1.96% and 0.59% QoQ, respectively. This was due to standstill asset classification norms. On a proforma basis, GNPA and NNPA ratio increased 131 bps and 100 bps QoQ to 3.70% and 1.92%, respectively. The bank has restructured loans worth Rs 687 crore (~2.7% of loans) and further expects ~5% of loans to come-up for restructuring. During the quarter, the bank has made provisions worth Rs 86 crore, towards Covid related stress. As a result, it now holds provisions worth Rs 229 crore, towards the same. In addition to this, the bank has floating provisions worth Rs 106 crore. The bank overall has provision buffer of ~2% of net advances.

Outlook

We downgrade our rating on the stock from Buy to HOLD with a revised target price of Rs 130/share (Rs 135 earlier), valuing the business at ~1x FY23E ABV.