“We had downgraded our rating on DCB to Neutral in Jul ’19 (stock price at INR 239) amid weaker operating performance and an uncertain growth/asset quality outlook. However, with a recovery in loan growth and anticipated improvements in operating leverage, we estimate a 21% earnings CAGR over FY24-26E,” said Motilal Oswal in its report.
The brokerage firm stated that the bank has made significant investments in the business and is well poised to sustain its healthy growth rate and while opex has been high owing to investments in business, it is expected that the operating leverage will kick in, pushing RoA toward 1%.
“We expect a healthy 19% CAGR in revenue over FY24-26E amid stable margins and steady loan growth. We estimate RoA/RoE to reach 1%/14% by FY26 (FY24 RoA: 0.9%),” stated Dixit Sankharva, Research Analyst at Motilal Oswal.
The bank’s asset quality outlook also looks healthy and the GNPA is expected to improve further.Additionally, DCB has been able to maintain its NIMs within a healthy range of 3.6-4.0%, aided by a granular liability profile, limited reliance on bulk deposits and an improving asset mix as the bank has strategically reduced the mix of low-margin corporate loans.DCB Bank shares have risen 20% in the last one year, while having fallen by 1.8% in the current calendar year.Shares of DCB Bank were trading 3.75% higher at Rs 142.70 on BSE around 2:45 pm today.
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