Buy DCB Bank, target Rs 213: HDFC Securities

HDFC Securities has a buy call on DCB Bank with a target price of Rs 213.

The current market price of DCB Bank is Rs 186.15.

Time period given by the brokerage is one year when DCB Bank price can reach the defined target.


Investment rationale by the brokerage-
DCBB’s strong core operating performance was driven by an uptick in NII (+17 per cent YoY), higher other income (rise in treasury gains and misc. inc) and controlled opex (6/2 per cent).

This led to a continued improvement in operating efficiency (core C-I ratio down 250bps to nearly 56.9 per cent). Contrary to our expectation, NIMs were sequentially stable at 3.83 per cent. We believe NIMs have bottomed out at this point and will increase as a result of lower competition in the mortgage segment and the recent MCLR reset.

However, asset quality deterioration (GNPAs: +9 per cent QoQ to 1.92 per cent) and a sub 25 per cent loan growth (+23 per cent) were marginally disappointing. While operating efficiency, evidenced by a lower C-I ratio, improved sequentially, its sustainability will be a key monitorable. Further, oplev will be instrumental in driving RoAA improvement. We have marginally tweaked our estimates to factor in higher slippages and lower loan growth.

Our assumptions on opex (19 per cent CAGR) and NIMs (3.65 per cent) over FY19-21E provide a cushion to earnings. Maintain BUY with a TP of 213 (2x Dec-20E ABV of Rs 106).