Buy DCB Bank; target of Rs 146: FinQuest Securities

FinQuest Securities is bullish on DCB Bank and has recommended buy rating on the stock with a target price of Rs 146 in its April 22, 2015 research report.

July 31, 2015 / 20:20 IST

26 Aug, 2025 12:21

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FinQuest Securities' report on DCB Bank

"DCB Bank continued its robust performance in the fourth quarter by reporting growth of 37.2% & 61.1% in PBT & PAT to Rs 537 & Rs 629 mn Y-o-Y respectively. This was achieved on back of strong topline growth and improving cost-income ratio and tax write back of Rs 93 mn during the quarter. DCB Bank's Net Interest Income (NII) clocked 30% growth to Rs 1297 mn in Q4FY15 Y-o-Y leading to 20 bps improvement in NIMs to 3.8% Y-o-Y. The asset quality continues to remain strong as GNPAs & NNPAs stood at 1.76% & 1% in Q4FY15 vs. 1.9% & 1% in Q3FY15 respectively. We remain positive on the long term growth prospects of the bank and have "Buy" rating on the stock."

"DCB's total business has grown by 25% Y-o-Y and 8% Q-o-Q in Q4FY15. Advances have grown by 29% Y-o-Y in Q4FY15 to Rs 105 bn. Mortgages, AIB, CV & Corporate segment were the main contributors to credit growth as Mortgages and CV portfolio grew by 43% and 54% Y-o-Y in Q4FY15 respectively. Management targets to double its balance sheet in next three years. We expect advances to grow by 26% CAGR over FY15-17E. Deposits registered a growth of 22% Y-o-Y in Q4FY15 on back of 32% Y-o-Y growth in retail deposits, while the NRI deposits grew by 36% Y-o-Y. DCB Bank's dependence on bulk deposits is limited as 80% of total deposits are retail in nature. This helps the bank from adverse interest rate differentials. Also DCB Bank is expanding its branch network which will help to garner more deposits in coming future. We estimate deposits to grow by 25% CAGR during FY15-17E. CASA deposits during the quarter increased by 14% Y-o-Y, however, the share of CASA in total deposits has fallen to 23.4% from 25% in Q4FY14. We believe, in the medium term the CASA ratio to remain ~23-25% and as the bank will continue to focus on expanding its asset side."

Valuation"We believe DCB bank is set for next growth phase on back of i) strong balance sheet growth ii) branch expansion to augment CASA iii) improving asset quality by FY17E iv) decline in C/I ratio. At the CMP stock trades at 1.9x & 1.7x FY16E & FY17E adjusted book value (ABV) respectively. After recent capital infusion of Rs 2.5 bn we expect return ratios i.e. RoE to be ~14% in FY17E. We maintain "Buy" rating on the stock for the target of Rs 146 (valuing at 2.1x FY17E ABV)", says FinQuest Securities research report.

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