Accumulate DCB Bank; target of Rs 68: Dolat Capital

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Dolat Capital's research report on DCB Bank

While PPoP growth at 15% YoY was in-line, lower PAT was driven by COVID related provisions of Rs0.6bn. Rise in GNPA ratio (+30 bps QoQ to 2.46%) was owing to lower write-offs and weak recoveries/upgrades. Even as CASA levels declined QoQ, the bank has been granularizing and gradually strengthening its liability profile, albeit at higher costs. While we like the Bank for its conservative lending approach, granular secured franchise, demonstrated ability to manage recoveries and improved capital consumption, interim growth and asset quality challenges along with weak recovery prospects could continue to weigh on its earnings profile. We consequently slash our RoA estimates to 0.4%/0.9% for FY21E/22E, factoring in the benefit of contingency buffers (Rs1.6bn) in FY21E credit costs.

Outlook

We maintain our ACCUMULATE recommendation on the stock with a TP of Rs68, valuing it at 0.7x of FY22E P/ABV.

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