Comments
AnandRathi
DCB Bank (Hold)
CMP: ₹182
Target: ₹206
We are positive about DCB Bank’s strategy to roll out branches. As branches mature, this should manifest in CASA traction and high loan growth. Capital raising in H1 FY18 would support loan growth. However, asset quality concerns persist.
We believe management has been consistent in execution: it reported 262 branches at FY17-end (198 at FY16-end). We think branch expansion would continue at a similar pace in H1 FY18, taking the count close to 300. We expect cost-to-income to taper through FY18, and forecast around 58 per cent for FY18.
We forecast 24 per cent loan growth in FY18, as branches start maturing toward H2 FY18. We expect loan growth to be driven mostly by SME and mortgages. We forecast a 20 bps uptick in NIM in FY18, to 4.08 per cent. We believe CASA (24.5 per cent for FY18) could gain traction toward H2 FY18 as branches mature and shrink the cost of funds to 6.52 per cent in FY18. Our April 2018 target price of ₹206 (earlier ₹156) is based on the capital excess/deficit method as banks have to meet the 8 per cent core tier-1 ratio by FY19. We raise our TP by about 32 per cent due to high loan growth and CASA traction, thus implying a ~2.2x multiple on the FY19e book.
Risks: Delay in branch addition, change in management.
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