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Dolat Capital Report
Despite healthy growth trends, DCB Bank Ltd. profitability was impacted by lower than expected net interest margin (-14 basis points QoQ) and elevated slippages. Slippages were mainly from restructured mortgage book, with healthy recovery prospects. Pressure on NIM and elevated slippages to continue in near term, though recoveries should strengthen too.
While DCB Bank's asset quality metrics deteriorated (gross non-performing assets % +10 bps QoQ), credit costs were limited (51 bps) as slippages (4.5%) were from restructured book (partly provided for) and as provision coverage ratio moderated to 63% (-130 bps). Management intends to raise PCR to 70% over time, with constant currency guidance at sub 40 bps.
We revise earnings lower by 4% for FY24E, factoring softer NIM. Rolling over to September 2025E, maintain 'Buy' with target price of Rs 155, valuing the bank at 0.9 times adjust book value against FY25E return on assets/return on equity of 1%/13%.
Trading at 0.7 times FY25E, valuations are undemanding.
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