Buy DCB Bank; target of Rs 150: Motilal Oswal

Motilal Oswal's research report on DCB Bank

DCB Bank (DCBB) has experienced a healthy recovery in loan growth over the past two years after reporting tepid trends over FY20-22. The bank continues to focus on granular retail loans with a retail mix (ex-Agri) at 65% of the overall portfolio. DCBB arrested the downward pressure on NIM in 3QFY25, and the bank can maintain a resilient performance despite 25-50bp repo cuts. Aided by a granular liability profile, limited reliance on bulk deposits & improving asset mix, we estimate the bank to retain its NIM at ~3.4%. While opex has been high owing to investments in business, we expect operating leverage to kick in, aiding the move of RoA towards 1%. We believe the C/I ratio has broadly peaked at 64% in FY24 and expect the ratio to moderate to ~59% by FY27E. We expect a healthy 22% CAGR in total income over FY25-27 amid limited downside in margins and steady loan growth. We estimate its RoA/RoE to reach 1%/15% by FY27. With a likely recovery in loan growth and anticipated improvements in operating leverage, we estimate a 26% earnings CAGR over FY25-27.

Outlook

We find the current valuation of 0.52x FY26E ABV attractive for an RoA of ~1% and ~26% earnings CAGR over FY25-27E. We reiterate our BUY rating on the stock with a TP of INR150 (premised on 0.8xSep’26E ABV).