DCB Bank shares spurt 9.5% post strong Q4 results; brokerages say negatives priced-in, see up to 48% upside

Amid robust March quarter results, shares of DCB Bank spurted 9.5 per cent to touch the day’s high level of Rs 85.45 per share on the BSE intraday trade during Monday’s session. Even brokerages are bullish on the stock amid growth outlook and see up to 48 per cent upside in the share price. 

DCB Bank on Saturday reported almost 45 per cent year-on-year growth in its net profit to Rs 113 crore in the fourth quarter of the financial year 2021-22 (Q4FY22), as against Rs 78 crore in Q4FY21. While its net interest income (NII) during the quarter rose to Rs 380 crore, from Rs 311 crore YoY. 

Bank's asset quality improved sequentially at 4.32 per cent of the gross advances as of March 31, 2022, as against 4.78 per cent at the end of December 2021, the private lender said in a filing. 

Despite elevated Operating expenses, improving traction on credit and deposit growth thus supporting NIMs (Net Interest Margins) along with normalizing credit costs will collectively help DCB achieve an ROA/ROE 1%/12-14% over the medium term, Axis Securities said in its report, adding that additionally, the bank remains adequately capitalised to fuel medium-term growth. 

The brokerage believes the stock trades at attractive valuations (0.5x FY24E ABV) and the improving operating performance and asset quality are key triggers for rerating the stock. It maintained a Buy rating with a target price of Rs 115 apiece (0.8x FY24E ABV), implying an upside of 47 per cent. 

Apart from superior flexibility, which the management demonstrated in managing the current volatile situation, Ashika Institutional Research sees healthy improvement on the profitability front owing to an improvement in asset quality; rise in PCR; revival in loan book growth; and healthy growth in core operating income.  

The brokerage expects DCB Bank to navigate through the current situation rather comfortably. It believes most of the negatives are already priced in while maintaining a Buy rating on DCB Bank with a revised target price of Rs 99 per share, which translates into a nearly 27 per cent upside.  

While Motilal Oswal turned constructive on the stock as the earnings outlook is improving, growth momentum is gathering pace, and the stock is trading at attractive valuations (0.6x FY24E P/ABV). However, it remains watchful of asset quality, due to a high restructuring book, while the rising interest rate may result in treasury losses/NIM pressure, which could dent the earnings recovery.  

Motilal Oswal raises its FY23/FY24 estimate by 9%/10% and expects an RoA/RoE of 1%/12.4% in FY24, while maintaining a Neutral rating, with a target price of Rs 90 apiece, implying a 15 per cent upside.