Cholamandalam securities is bullish on DCB Bank has recommended buy rating on the stock with a target price of Rs 80 in its research report dated May 25, 2020.
Cholamandalam securities' research report on DCB Bank
DCB’s advances growth slowed to 7.5% YoY (down 0.4% QoQ) to ₹ 253bn in 4QFY20. This was due to the sequential de-growth in the entire portfolio baring Mortgages (42% of the loan book) which increased 2.1% QoQ. Mortgages comprises of Home Loans (38% of Mortgages) and LAP (62%) with average LTV of 49% and 37%, respectively indicating significant equity of customers in their projects. This implies a lesser risk in the book as customers have significant vested interests. The bank continues to see challenges in the CV segment, the recoveries in this segment are highly dependent on economic revival. Overall, the bank has not grown its loan book during the lockdown and the management expects muted growth for 1HFY20 as the economy battles a pandemic that has induced a staggered lockdown. The bank does not view any challenges in HL and LAP portfolio. The challenges continue to be in CV portfolio until economic activity picks up.
Despite a well-diversified loan portfolio the bank expects the slippages to rise and credit costs to go up marginally in the short term. An increase in credit costs coupled with muted outlook on loan growth is likely to pressure earnings for FY21E. However we expect the asset quality and earnings to revive sharply in FY22 driven by economic recovery and operational efficiency. DCB Bank trades at 0.4x FY22E P/ABV and 4.1x FY22E P/E. We retain the rating on the stock at BUY with a revised target price of ₹80, assigning a FY22E P/ABV of 0.55x.
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