Reliance Securities

DCB Bank (Buy)

CMP: ₹175.4

Target: ₹230

DCB Bank’s conservative approach towards lending, granular secured franchise, and demonstrated ability to manage recoveries has aided its asset quality profile. The Bank has one of the lowest industry-wide GNPA/NNPA ratios of 2.1 per cent/1 per cent respectively as of September 2019.

While slippages and GNPA have inched up in the last few quarters, high and timely recoveries from a secured granular book should support the bank’s asset quality.

Even as recent loan growth has been muted (12-13 per cent y-o-y growth over the last two quarters), the bank has been doubling its loan book every 3-3½ years, and management expects the above momentum to continue.

The company’s niche presence in self-employed individuals and low formal financing penetration in the segment should aid its strong growth trajectory.

With branch expansion drive done with, we expect improvement in C/I ratio to aid profitability, with CI ratio expected to decline by 400 bps over the next two fiscals to 53 per cent.

At CMP, the stock trades at multiple of 1.5x FY21E. We have a ‘buy’ recommendation on the stock with a target price of ₹230 (based on 2x FY21E ABV).

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