We like DCB Bank due to its granular loan book, risk adjusted growth approach and steady NIMs profile. However, we expect some headwinds in the near term on its growth, margin and asset quality front. Moderation in credit growth/NIMs coupled with asset quality stress could weigh on its return ratios. We have valued the stock at 1.8(x) to its FY21E ABV and arrived at a fair value of Rs 218 per share, giving a potential upside of 9%. We downgrade the stock to ‘HOLD’ with a revised TP of Rs 218.
DCB Bank has maintained its long term growth path. Focus on risk adjusted growth, steady margins and improvement in CI ratio are expected to lead to an improvement in earnings at 23.5% CAGR, return ratio of ~1.1% and RoE of ~15% by FY21E. Therefore, we reiterate our positive stance and maintain our target price of Rs 250 valuing at 2.2x FY21E ABV. Recommend BUY.
We have revised our estimates for FY20/FY21 and downgraded DBL to Accumulate on slower growth, margin pressure and tepid core fee income traction, revising our target price to Rs256 (from Rs278 earlier) and valuing the stock at 1.8x FY21E P/BV.