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    Neutral on DCB Bank, target price Rs 85: Motilal Oswal

    Synopsis

    The brokerage remains watchful of asset quality as the bank has a high proportion of the book under moratorium and borrowers would require more time to recuperate from the Covid-19 crisis.

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    Motilal Oswal has given a neutral rating to DCB Bank with a target price of Rs 85. The share price moved up by 1.69 per cent from its previous close of Rs 80.05. The stock’s last traded price is Rs 81.40.

    DCBB reported a sharp reduction in its SMA/overdue accounts, which had availed a moratorium of Rs 7.1 billion as of 31st May’20 from Rs 19.1 billion as of March 31, 2020. This implies about 63 per cent reduction from March numbers, says the brokerage. Furthermore, the amount for which the asset classification benefit has been availed stands at Rs 893 million, on which the bank has made the full required provision of Rs 90 million. Overall, the bank holds Rs 630 million (including Rs 90 million) toward Covid-19-related provisions. As of end-Apr’20, home loans (52 per cent), business loans – LAP (56 per cent), and MSME (60 per cent) were under moratorium, while 60 per cent of the loan book was under moratorium overall as of April 2020.

    Investment Rationale

    DCB Bank reported moderation in business growth in 4QFY20, reflecting a challenging macro environment. The bank expects business trends to remain weak as the focus in the near term would be on preserving the balance sheet and risk reduction. Thus, the brokerage expects the bank to report moderation in NII and fee income, dragged down by reduced business activity. While the bank has reported a sharp reduction in its SMA accounts availing moratorium, collection trends are likely to remain an important metric as economic activity recovers gradually under Unlock 1.0.

    The brokerage remains watchful of asset quality as the bank has a high proportion of the book under moratorium (~60 per cent), and borrowers would require more time to recuperate from the Covid-19 crisis. Hence, the brokerage expects credit cost trends to remain elevated in the near term. Motilal Oswal estimates DCB Bank will deliver FY22E RoA/RoE at 0.8 per cent/9.1 per cent and maintains a neutral rating, with a revised target price of Rs 85 (0.7 times FY22E ABV). The stock currently trades at 0.8 times FY22E ABV.

    Quarterly Results
    DCB Bank-MotilalOswalJune252020
    Source: ET.com

    Financials

    For the quarter ended March 31, 2020, the company reported standalone Interest Income of Rs 723.03 crore, down -.63 per cent from last quarter Interest Income of Rs 727.62 crore and up 9.33 per cent from last year's same quarter Interest Income of Rs 661.31 crore. The bank reported net profit after tax of Rs 68.76 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 14.9 per cent stake in the company as of March 31, 2020, while FIIs held 22.8 per cent, DIIs 35.3 per cent and public and others 27 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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