Target: ₹175
CMP: ₹141.60
We met Praveen Kutty, MD & CEO of DCB Bank.
Key highlights are: Management is re-orienting DCB towards being customer-centric, as opposed to being product-centric earlier. Over the medium term, management believes this should ideally enable higher customer engagement, enrich depth of relationship, improve cross-selling, lower cost of acquisition and scale benefits and in whole, position the bank better vs competition.
Co-lending share has grown swiftly to about 13 per cent of overall loans - growth here is now likely to be similar to overall loans. Co-lending is slightly NIM dilutive, but has significantly higher RoE; Given the lead-lag on interest rate, NIM may experience pressure, but DCB expects fee/treasury gains and contained opex to cushion the impact; and While a large part of the rise in gross slippages (vs. pre-Covid-19) is related to gold loans (minimal impact on credit costs), the bank aims to further tighten its underwriting.
On balance, we maintain Buy with an unchanged TP of ₹175, valuing the stock at about 0.8x FY27E ABV.
Key risks: Slower-than-expected operating efficiencies; and higher-than-expected NIM pressure.