ICICI Direct recommended hold rating on DCB Bank with a target price of Rs 59 in its research report dated May 26, 2020.
ICICI Direct's research report on DCB Bank
DCB Bank reported an operationally steady quarter but with higher provision at Rs 63 crore related to Covid impacted earnings. Provision surged 240% YoY to Rs 118 crore, including Covid related provisioning of Rs 63 crore vs. RBI requirement of Rs 9 crore. The bank has maintained additional floating provisions of Rs 100 crore, i.e. ~0.4% of advances. PCR was at ~70.8%. The bank has provided moratorium to all customers with opt out option except NBFC and large corporate clients. This has led to ~60% of its customers opting for moratorium (home loans – 52% by value and business loans/LAP – 56% by value) as of end of April 2020. In home and business loans, collection dipped from ~97% in January-February 2020 to ~90-93% in March 2020 and 51-57% in April 2020 (led by moratorium).
Business momentum is expected to remain slow though the bank remains a beneficiary of the credit guarantee scheme announced by GoI. However, given substantial exposure to MSME & LAP, we remain cautious in the current environment. Focus on containing opex does provides cushion but lower business growth & expected asset quality woes are seen keeping RoE lower at 8-11% in FY20-22E. Hence, we maintain HOLD rating with a revised target price of Rs 59, valuing the business at ~0.5x FY22E ABV.
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