DCB Bank - Business Growth Steady; Valuations Reasonable: Motilal Oswal

Motilal Oswal Report

DCB Bank Ltd. has seen a healthy recovery in loan growth after witnessing sluggish trends during FY20-22. The bank's shift in loan mix toward retail loans has not only shielded its margins but also provided stable, profitable growth.

DCB Bank has made significant investments in the business and is well poised to sustain the healthy growth rate, while improvement in operating leverage helps sustain return on assets at ~1% by FY26E versus 0.9% in FY24. We, thus, estimate return on equity to recover toward ~14% by FY26E versus. average 10% over FY22-24.

We had downgraded our rating on DCB Bank to Neutral in July 19 (stock price at Rs 239) amid weaker operating performance and an uncertain growth/asset quality outlook.

However, we find the current valuations at 0.7 times FY26E adjusted book value attractive in context to a ~21% earnings compound annual growth rate estimated over FY24-26E.

We, thus, upgrade our rating to 'Buy' from Neutral, with a revised target price of Rs 175 0.9 times FY26E adjusted book value.

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