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Is DCB Bank Shares Worth Buying After A 30% Crash?


Development Credit Bank or DCB Bank has been a solid banking performer, beating Sensex returns, until Oct 13.

But, on Oct 13, the bank announced a rapid expansion to double branches by Dec 2016. This did not go down well with the market and the stock crashed as much as 33% in 2 trading sessions.

Is DCB Bank Shares Worth Buying After A 30% Crash?
The management was quick to issue a clarification saying that the branch expansion would be calibrated and it reduced the branch expansion until Dec 2016.

This saw some recovery in the stock, but, the damage had already been done.

Q2 2014-15 Q2 2015-16
Net profit Rs 41.1 crores Rs 36.9 crores
Total Income Rs 154.7 crores 198.7 crores
Gross NPA 1.90% 1.99%
Net NPA 1.07% 1.16%
CASA Ratio 25.46% 24.10%
ROE 13.53% 8.92%

Is it worth buying the stock after the 30 per cent crash?

On most parameters the bank has fared well. Take a look at some of the positive features:

* CASA of 24.10% and CRAR of 13.63% under Basel III

*Foreign Portfolio Funds hold a solid stake in the bank.

*Crisil rating of A1+ for certificate of deposits

*Agha Khan Fund holds more than 16% stake in the bank.

*Last few quarters have been excellent for the bank.

Share price and valuation

The bank has said that it would be rapidly expanding its network, which is likely to put pressure on the return on equity and net profits in the coming years. In fact, the bank's financial performance maybe under stress in the next 2 years.

It will also have to compete with other players, especially from the payment banks that have been recently granted a license.

The bank reported an EPS of Rs 1.28. Eeven if the bank is able to maintain the same set of results, the EPS would be around Rs 5-6 for the full year. One cannot expect a substantial expansion in EPS from current levels. This would translate into a p/e of close to 16-17 times.

This is certainly high considering that you can still get a great private sector banking player like ICICI Bank at a lesser p/e.


All in all, if you are looking to invest, wait for the share price to fall even further. If you can get the stock around the 85 levels, it would be a great pick at that price. At Rs 97, the stock is a tad bit expensive.

Read more about: dcb
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