Leading Broking Firm Sees An Upside Of Upto 32% Returns On A Small Cap Banking Stock

Prabhudas Liladhar, a leading stock broking firm has recommended investors to 'buy' DCB Bank stock, showing an upside potential of 32% in its analyst coverage report.

According to the analyst report, "We do not materially change estimates, but with asset quality risks receding, provisions for FY24/25Earnings could be lower (PLe at approximately 68 basis points) leading to earnings upgrades. DCB Bank earnings were in-line with profit after tax (PAT) at Rs1.14 billion, although asset quality was better than expected. Net interest income (NII) was a slight beat by 1.9%, due to tad better loan growth and net interest margin (NIM). Strong credit flow is sustaining, as disbursals in Q3 at Rs 46 billion were similar to Q2 levels."

Low GNPA, but healthy credit momentum clocked at Rs 46 billion disbursals

According to the coverage report, "Gross non-performing assets (GNPA) /Net non-performing Assets (NNPA) were lower than expectations at 27 basis points (bps) /17bps QoQ to 3.6%/1.4% led by lower slippages. Provisions were a beat at Rs 407 million. PAT was in-line at Rs1.14 billion."

DCB Bank's loan book was healthy, it clocked Rs 46 billion disbursals, for the quarter as per the report. "Disbursals were largely driven by: mortgage Rs13.9 billion, AIB Rs10.4 billion, MSME/SME Rs 9.7 billion, and corporate banking Rs 6.2 billion."

Future guidance from management

As per the Prabhudas Liladhar report, the management has given some guidance about balance sheet and operating expense (opex). "Management retained its guidance to double balance sheet over 3-4 years which translates to 20-25% growth each year. Focus continues to be on mortgages, SME/MSME and AIB. Mortgages continues to be a mainstay and its share could inch up from approximately 43% as enquiry volumes and conversion rates remain healthy despite rate hikes. Opex continues to be elevated (cost/assets at 2.86%) in Q3 which might remain so over near term considering growth is back in the reckoning, however, endeavor is to reduce cost/assets to 2.4% in next 2 years."

"Bank expects gross slippage ratio to moderate in 2 quarters. Guidance is to reach a credit cost of approximately 50bps as slippages from mortgages, home Loans and CV is expected to decline." was also reported in the analyst coverage.

Buy DCB bank stock, with a target price of Rs 150

The analyst has asked investors to buy the DCB Bank small cap stock with a target price of Rs 150 per share. The current market price of per share is Rs 113, an intraday decline of 0.44%. Buying now at the latest market price will fetch you potential gains of 32.74% returns.

This small cap stock's 52-week high is quoted at Rs 141.20 per share and 52-week low at Rs 68.05 per share respectively. The share price rallied by 31.32%, and 32.4% in over 1-year and 6-months respectively.

According to Prabhudas Liladhar coverage report, "DCB Bank retained its guidance to double balance sheet over 3-4 years and hence we build a loan compound annual growth rate (CAGR) of 19% over FY23-25E. Asset quality improved with GNPA at 3.63% (PLe 3.89%, reduction of 27bps QoQ), driven by lower gross slippages. Slippage run-rate is expected to fall over next 2 quarters. DCB is targeting a RoA/RoE of 1.0%/14% which would be achieved by FY25 earnings. We maintain 'BUY' rating and multiple at 1.0x Sep'24 ABV, keeping target price unchanged at Rs150."

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Liladhar, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.