Hold DCB Bank; target of Rs 59: ICICI Direct

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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).

Outlook

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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