DCB's stock has seen a sharp de-rating post pandemic. For the around five-year period, pre-Covid-19 (2015–20), the stock averaged ~2x multiple on a 1-year forward basis. Excluding the three months of peak crisis, it averaged just 0.8x forward book in the last ~5 years.
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ICICI Securities Report
In this report, we examine the reasons for the significant de-rating of DCB Bank Ltd. post Covid-19. It is perhaps the only banking stock (without material MFI exposure) where current valuations are similar or lower than pandemic levels.
We highlight that DCB has seen a significant rise in gross slippages, though net slippages or credit costs levels have seen little or no differences. The loan growth, even excluding co-lending, has consistently been strong and one of the highest across peers.
The heavy-lifting phase on investment in branch/headcount too seems over; RoA improvement could come through once the net interest margin cycle reverses in FY27.
On balance, we maintain Buy with an unchanged target price of Rs 175, valuing the stock at ~0.8x FY27E adjusted book value.
Key risks: Slower-than-expected operating efficiencies; and higher-than-expected NIM pressure.
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