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HomeEconomyBuy this small-cap banking stock for over 50% returns MPNRC
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Buy this small-cap banking stock for over 50% returns MPNRC

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The share price of DCB Bank is in base-building stage since early June 2022 and is not performing well. Shares of DCB Bank closed at Rs 73.75 per share on Wednesday. It opened at Rs 76.885 per share. However, Axis Securities recently published a report on DCB Bank, in which the brokerage has suggested investors to buy shares of the company at a target price of Rs 115 per share. The brokerage is bullish on DCB Bank and expects around 50 per cent growth in the next 12-18 months. DCB exited FY22 with a strong recovery pipeline and moderate slippage. This indicates a strong asset quality improvement as well as promising credit growth prospects.

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stock price history

Shares of DCB Bank were trading around Rs 75 on Wednesday, which means that the brokerage is expecting a rise of around 55 per cent in this banking stock. Banking stock stocks have lost more than 20 per cent in the last one year. It has given negative returns of 10.35 per cent in the last 1 month. However, in 3 months of investment, the share price rose by around 6.42 per cent. Looking at the long-term investment returns, the stock has not performed well. In 3 and 5 years, the share price has declined by more than 60 percent.

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Speaking on the share price outlook of DCB Bank, the brokerage said, ‚ÄúDespite primarily operating in the self-employed segment, DCB has been able to manage asset quality stress quite well. Collections are well maintained and with this trend likely to persist, the secure nature of the bank’s restructured ledger indicates moderation in credit costs going forward. A strong recovery pipeline and positive trends in terms of moderation in slippage will aid the improvement in asset quality. With asset quality stress and credit cost peaking, balance sheet growth and improving return ratio should boost the valuation of DCBs.

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DCB Bank Financial Performance

Highlighting the key financial performance of DCB Bank, Axis Securities’ research report says, “Bank’s focus on maintaining asset quality and improving collections along with cautious approach towards growth slowed its disbursements , and consequently increased. However, with the macro normalizing, DCBs picked up momentum in both advances and deposits. NII growth slowed to 6 per cent y-o-y due to higher slippages and higher liquidity load on returns. However, this was partially offset by a 46bps improvement in CoF due to a benign interest rate environment. Thus, the NIM remained largely stagnant at 3.56 per cent in FY12, supported by higher recovery in Q4 of FY12. While fee income growth remained healthy at 22 percent year-on-year, lower Treasury income impacted non-interest income, which remained flat year over year.

asset quality

The brokerage note said the COVID 2.0 disruptions added to asset quality stress, resulting in slippage from the already stressed asset pool. The restructured pool also increased to 6.8 per cent in Q2 of FY12 from 4.1 per cent in FY2011, despite DCB being selective in restructuring loans. However, the reconstituted pool is largely safe (98+ percent) and the collection remains well maintained so far. A pick-up in economic activity improved collections. This improved asset quality resulting in better recovery as well as reduction in slippage. During the year, while slippage from the gold portfolio was high, the Bank remains confident of recovery in that portfolio through auction/sale of collateral, thereby easing the stress on asset quality. Thus, GNPA remained at a manageable level of 4.3 per cent versus 4.1 per cent in FY2011, despite several adverse conditions.

On the suggestion of positional investors with regard to the shares of DCB Bank, Axis Securities said, “We retain our estimates and maintain our buy recommendation on the stock with a target price of Rs 115/share.”

The views and investment suggestions of experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decision.

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