Centrum Broking

 

CMP: ₹81

Target: ₹131

Disbursements have stopped since the last 7-10 days and may be hampered for the next 30-45 days. Since lawyers and registrars have stopped working, some legal aspects relating to disbursements are not possible. Major banking work happens in the last two weeks of the quarter. Although it would be difficult to assess the impact of the lockdown, the bank nevertheless is expecting a forbearance for the entire banking system. Many customers are willingto pay but the ability is impaired as their payments have been halted. Capital adequacy is healthy with Tier-1 capital at about 13.5 per cent including 9MFY20 profits.

Valuation: On the basis of current lockdown due to Covid-19, for FY21E we have sharply trimmed our growth estimates and raised our provisions. Hence we lower our FY21/22E PAT projections by 13.3 per cent/12.2 per cent and given the recent correction in the BFSI space, we cut our multiple/target price to 1.2x/₹131.

We remain positive on DCB Bank and maintain a ‘buy’ rating as opex leverage is still in sight and the bank holding contingent provisions of ₹200 crore as at December 2019, provides some cushion in stressed times.

Risks: Lower loan growth and higher stress in retail/SME loans leading to higher provisions.

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