This Small Cap Private Sector Bank Gets Buy Call For 40% Gains, Reported PAT Of Rs 0.97bn

Prabhudas Lilladher is bullish on DCB bank, a private sector bank, suggests buy for a target price of Rs 160 apiece. The report came shortly after the bank declared Q1FY23 results. In Q1 FY 2023, the Bank disbursed Rs.45bn largely stable sequentially. Of which, Mortgage Rs.11.15 bn, Gold Loans Rs 3.88 bn., Agri & Inclusive Banking Rs.5.66 bn., MSME/SME Rs.7.15bn., Construction Finance Rs. 2.2bn., Commercial Vehicle Rs. 2.2bn, Corporate Banking Rs. 6.1bn, Co-Lending was limited during the quarter Rs.8.7bn. According to the brokerage gross and margins were a miss, expected to reverse in coming quarters.

Stock Outlook & Returns

DCB Bank's stock today opened at Rs 89.15 apiece, currently trading at Rs 86 apiece, fallen 3.48%. The previous close was Rs 89.10 apiece. The stock's Current Market Price is Rs 18.15 above its 52-week low level and Rs 20 below its 52-week high level.

The 52-week low of the stock is Rs 67.85 apiece, while the 52 week high is Rs 106 apiece. The ROE of the stock is 7.51%. TTM EPS is Rs 9.24. The PE Ratio is 9.31. PB ratio is 0.70. The dividend yield is 1.16% having a face value of Rs 10.

The stock in the last 1 month has fallen 2.27%, however, it has given a positive return in the past 1 month almost 14.44%. In the past 1 year, the share declined 18.1%, 55.52% in 3 years and 56.52% in 5 years, respectively.

According to the brokerage's estimated target price of Rs 120 apiece and the Current Market Price of the stock, it has the potential to surge 40% in 12 months.

Earnings beat lead by lower provisioning

NII was tad lower at Rs3.7bn (PLe Rs3.85bn) owing to higher funding costs despite better loan growth. Hence, NIM compressed by 18bps QoQ to 3.79% (PLe 4%). Loan growth was 17% YoY (PLe 13%) while LDR was higher at 85% as deposit growth was lower to loan growth. Other income was Rs0.9bn similar to expectations as fee income was steady sequentially, while there was nominal treasury gain. Opex was a miss at Rs3bn led by higher employee addition & other opex. Resulting in PPoP miss at Rs1.7bn (PLe Rs2.1bn) led by lower NII and higher opex. Provisions were lower at Rs 0.35bn (PLe Rs0.9bn) owing to strong recoveries. Asset quality was better with GNPA reducing by 11bps QoQ to 4.2% while PCR was steady QoQ at 55%. PAT was largely in-line at Rs.0.97bn (PLe Rs0.94bn).

Business momentum improving

Disbursals were healthy at Rs45bn that was largely attributable to mortgage, SME (shorter term product) and corporate. Co-lending partnerships would be extended, aspirations to increase share to 4-5%. Guidance is to double the balance sheet every 3-4 years with focus on SME/MSME, mortgage loans, tractors, KCC. SME utilization are lower in Q1, however the same is expected to pick up. Deposit mix continues to improve with CASA ratio rising by 182bps QoQ to 28.6% and management endeavors to increase ratio to +30% by branch led distribution.

Opex to remain elevated; asset quality steady

Opex for Q1FY23 increased by 31% YoY led by increase in both employee expenses of 26% YoY and other opex by 38% YoY. Management expects cost-income to remain elevated in near term as branch expansion and technology spends would continue. Gross slippages were higher at R5.7bn (PLe Rs3.2bn) mainly led by gold loans although net slippages were negligible owing to strong recoveries of Rs5.7bn due to intra-quarter recoveries on account of Gold Loans. Hence GNPA reduced 11bps QoQ to 4.22%. The OTR pool slightly declined QoQ from Rs20bn to 19.5%. Focus is to reach a credit cost level of ~55bps as the slippages from mortgages, Home Loans and CV moderate.

Prabhudas Lilladher Recommends Buy For A Target Price of Rs 120 apiece

According to the brokerage, "DCB earnings came in as expected with PAT at Rs0.97bn. PPoP was a miss due to lower NII as margin declined QoQ despite strong loan growth of 17% YoY. Stronger recoveries drove lower provisions. Owing to a larger share of fixed rate loans, NIM may remain under pressure which has been factored into our projections. While gross slippages were higher, recoveries were stronger leading to negligible net slippages which led to reduction in GNPA by 11bps QoQ. Management guides to lower the GNPA to 2.5% over medium term. While earnings were miss on NII (slower passthrough) and gross slippages (due to seasonality), trends in both are expected to revese. We continue to remain constructive on DCB as asset quality risks are abating. Maintain multiple at 1.0x FY24 ABV with Target Price at Rs120. Reiterate BUY."

Disclaimer

The stock has been picked from the brokerage report of Ventura Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.