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Arihant Capital
DCB Bank (Buy)
CMP: ₹119.95
Target: ₹147
DCB bank, while steadily growing advances and fairly maintaining its asset quality, reported decent earnings performance.
DCB recorded profit growth of 61 per cent y-o-y to ₹62.9 crore; however, its PBT grew at a slower pace of 37 per cent y-o-y to ₹54 crore. PAT growth was high due to tax write-back (creation of deferred tax asset) of ₹9.3 crore.
The retail liability (80 per cent of total deposits) led growth strategy is not completely in line with expectations. Improvement in liability franchise stands as key priority for the bank. The CASA traction is not very encouraging and the CASA ratio stands near all-time low level of 23.4 per cent.
NIM at 3.75 per cent marginally up by 5 bps q-o-q, whereas on y-o-y basis it was up by 16 bps. In our view any further improvement in margins would be challenging for the bank. DCB had a strong loan growth with superior asset quality; however, we have valued DCB at discount to its peers because of higher proportion of retail deposits in total deposits.
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