Buy DCB bank; target of Rs 160: Dolat Capital Market

Dolat Capital Market's research report on DCB bank

DCB bank’s NII and operating profits declined YoY by 4% and 3% YoY respectively owing to interest reversals of previous quarter’s pro forma slippages (~ 30-40 bps impact on NIM) and higher opex. Asset quality metrics were in-line with continued improvement in collection efficiency across segments till March, limited slippages at 2.7% for FY21, and in-line restructured book at 4.3% of advances, mostly from the mortgage (primarily LAP) and CV book. While PCR has fallen to 45% from 53% levels a year ago, the bank continues to hold contingency buffers of Rs2.9bn or 1.1% of advances. Slippages at 2.7% for FY21 were below FY20 (2.8%), though higher than normalized levels for the bank. Pro forma gross NPAs increased by 40 bps QoQ and 160 bps YoY to 4.1% mainly on the back of weaker recoveries/upgrades.

Outlook

We maintain our BUY recommendation on the stock with an unrevised TP of Rs160, valuing the bank at 1.2x of FY23E P/ABV. The stock currently trades at 0.7x FY23E P/ABV.