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Emkay Global
DCB Bank (Sell)
Target: ₹75
CMP: ₹92.70
Amid sub-par credit growth, muted margins and asset-quality risk coming to the fore, DCB Bank reported a beat on PAT at ₹78 crore (est. ₹57 crore ), mainly due to better core fee income and under-provisioning. The bank carries a Covid-19 contingent buffer of 0.5 per cent of loans, which looks sub-par given the elevated potential stress.
Reported GNPA stands high at 4.1 per cent vs. pro forma GNPA of 3.7 per cent in Q3 due to lower recoveries, while the restructured pool also seems to be high at 4.3 per cent of loans. We believe that the bank has relatively higher dependence on the self-employed category which remains the most impacted in the second Covid wave.
In our view, growth may remain subdued, while asset quality should remain weak with the onset of second wave, keeping earnings under pressure. We expect the bank's RoA/RoE to remain moderate at 0.8-1 per cent/9-13 per cent over FY22-24.
Maintain Sell and cut target price to ₹75 from ₹95, factoring in a slight cut in earnings (13 per cent in FY23) and TP multiple to 0.6x from 0.8x which reflects the weakness in growth/asset quality. The shorter tenure of current MD (1 year) also adds to volatility.
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