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Chola Securities
DCB Bank (Buy)
CMP: ₹182.65
Target: ₹216
DCB’s advances growth moderated at 12 per cent y-o-y (3 per cent q-o-q) to ₹28,800 crore in 2QFY20, led by de-risking in the corporate book. The ex-corporate loan book grew by 16 per cent y-o-y buoyed primarily by agricultural segment (18 per cent y-o-y) which constitutes 20 per cent of the total loan book, mortgages (15 per cent y-o-y) constituting 41 per cent of the advances and SME & MSME which grew 12 per cent y-o-y (12 per cent of loan book). The bank is focussed on growing loan book ex-corporate and in corporate segment the focus would be on short-tenor corporate loans.
Going forward, the management believes that NIMs of 3.7- 3.75 per cent is achievable.
Valuation: We believe that a healthy growth in advances, maturing branch network and well diversified loan portfolio is likely to drive earnings growth. In addition, improvements in C/I and leaning the loan mix to lesser risk are expected to bode well for the bank. DCB Bank trades at 1.4X FY21E P/ABV and 10.8X FY21E PE. We rate the stock a BUY with a target price of ₹216, assigning a FY21E P/ABV of 1.7X.
Risks: Delayed breakeven of branches; slower rise in fee income, continued pressure on yields going forward.
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