Emkay Global Financial is bearish on DCB Bank has recommended sell rating on the stock with a target price of Rs 51 in its research report dated May 23, 2020.
Emkay Global Financial's report on DCB Bank
Subdued credit growth and weakening CASA profile continued to weigh in on DCB’s margins, which coupled with Covid-19 related contingent provisions (Rs630mn; 0.2% of loans), led to lower PAT of Rs687mn - down 29% yoy. The GNPA ratio deteriorated by 31bps QoQ to 2.46% vs. 1.84% a year ago due to higher slippages of Rs1.5bn, mainly from the LAP/CV portfolio. Nearly 60% of customers by value have opted for moratorium given the bank’s main customers being self-employed. Factoring in slower growth, lower margins and higher LLP in the wake of deteriorating asset quality, we cut our earnings estimates for FY21/FY22 by 29/26% and expect RoA to slip to a low of 0.6-0.7% from 0.9% in FY20.
We maintain Sell/UW in EAP with a revised TP of Rs51 (based on 0.5x FY22E ABV) given weakening asset quality, liability profile and return ratios. Instead, we prefer City Union Bank that offers much better return metrics in the small-cap space.
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