Buy DCB Bank; target of Rs 147: Arihant capital

Arihant capital markets report on DCB Bank

DCB recorded profit growth of 61% YoY to Rs 62.9 crs, however its PBT grew at a slower pace of 37% YoY to Rs 54 crs. PAT growth was high due to tax write-back (Creation of deferred tax asset) of Rs 9.3 crs. The retail liability (80% of total deposits) led growth strategy is not completely in-line with expectations. Improvement in liability franchise stands as key priority for the bank. The CASA traction is not very encouraging and the CASA ratio stands near all-time low level of 23.4%. Further, branch network expansion (current branch network: 154 branches, 328 ATMs) also remains the key focus area for the bank in order to boost its CASA base.

"DCB had a strong loan growth with superior asset quality; however we have valued DCB at discount to its peers because of higher proportion of retail deposits in total deposits. We value DCB at 2.75x FY16E ABV of Rs 53.5 giving a price target of Rs 147. We recommend to BUY the stock", says Arihant capital markets research report.

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