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Buy DCB Bank; target of Rs 247: Cholamandalam Securities

April 24
15:25 2019

Cholamandalam Securities’ research report on DCB Bank

DCB’s advances grew by a healthy 15.9% YoY (3% QoQ) to INR 236bn in 4QFY19. The growth came predominantly from Mortgages (15.9% YoY) which constitute of 40% of the total loan book, Agricultural segment (28.8% YoY) constituting 20% of the advances and SME & MSME which grew 15.9% YoY (12% of loan book). The bank is moving toward short-tenor, lower capital consuming corporate loans, which coupled with higher repayments in 4QFY19, led to the decline in corporate book by 11.4%. Strong growth was also seen in Deposits (18.4% YoY, 3.4% QoQ), which stood at INR 284bn. CASA deposits grew by 16.6% YoY albeit slower than the 19% YoY growth seen in time deposits. As a result, CASA ratio dipped by 38bps YoY to 23.95%. The management targets to double the balance sheet over the next 3-3.5 years.

Outlook

We believe that healthy loan book growth, branch expansion and well-maintained asset quality paint a positive picture for the bank going forward. In addition, improvements in C/I due to concentrated effort from management to improve its efficiency and focus on small ticket loans are expected to result in strong RoE expansion. DCB trades at 1.5X FY21E P/ABV and 9.4X FY21E EPS. We rate the stock a BUY with a target price of INR 247, assigning a FY21E P/ABV of 1.8X.

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