Buy DCB Bank; target of Rs 150: Prabhudas Lilladher

Prabhudas Lilladher's research report on DCB Bank

DCB reported strong results as core PPoP beat PLe by 9.6% driven by better NIM/fees, while asset quality improved sharply. Margins beat PLe by 10bps at 4.5% as credit offtake QoQ was driven by mortgage (+7%) and AIB (+10.5%), while corporate declined by 18% QoQ. Disbursals are consistently rising and Bank sounded optimistic on credit outlook, as MSME demand is increasing and customer cash flows are improving. Asset quality positively surprised yet again as GNPA reduced by 43bps QoQ to 3.2% led by lower gross slippage ratio at 4.2% (PLe 6.7%). DCB expects slippage ratio to normalize in FY24 to pre-covid levels.

Outlook

Asset quality risks are abating and net stress (NNPA+OTR) declined over FY22-23 from 8.9% to 6.0%. DCB is targeting a RoA/RoE of 1.0%/14% which would be achieved by FY25E. Rolling forward to Mar’25 ABV, we maintain multiple at 1.0x and TP at Rs150. Reiterate BUY.