Buy DCB Bank; target of Rs 150: Axis Securities

Axis Securities report on DCB Bank

FY23 was a year of recovery for DCB Bank Ltd (DCB). The bank proactively pushed the growth pedal during the year, accelerating growth on both sides of the balance sheet. Its asset quality concerns continued to ebb as collections improved and the recovery pipeline continued to be strong even as slippages remained elevated. In an increasing interest rate environment, DCB witnessed significant margin expansion in FY23. This was supported by lower slippages YoY, faster loan repricing, and a lag in rate transmission in CoF, which enabled DCB to exit FY23 with NIMs at a multi-year high (highest since FY19). The improved demand outlook and the management’s guidance of doubling the balance sheet size in the next 3-4 years should keep the bank’s credit/deposit book healthy at ~18%/17% CAGR over FY23-25E.

Outlook

The stock is currently trading at an attractive valuation of 0.7x FY25E ABV and we value the stock at 0.9x FY25E ABV to arrive at a target price of Rs 150/share. The TP implies an upside of 21% from the CMP. We reiterate our BUY recommendation on the stock.