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Stock Recommendation: Buy This Small-Cap Banking Stock For More Than 50% Returns

DCB Bank’s share price has been in the base-building phase since the beginning of June 2022 and has not been performing well. The shares of the DCB Bank closed on Wednesday closed at Rs 73.75/share. It was opened at Rs 76.885/share. However, Axis Securities has recently published a report on DCB Bank, in which, the brokerage has suggested investors buy the stocks of the company for a target price of Rs 115/share. The brokerage is bullish on the DCB Bank and expects around 50 per cent of gains in the next 12 to 18 months. DCB exited FY22 with a strong recovery pipeline and moderating slippages. This hints at a strong asset quality improvement going forward along with promising credit growth prospects.

Share Price History

DCB Bank shares on Wednesday were trading around Rs 75 which means the brokerage is expecting around 55 per cent rise in this banking scrip. The banking stock shares have fallen more than 20 per cent in the last 1 year. It ahs gievn 10.35 per cent negative retuns in last 1 month. However, in 3 months of investment, the share price moved up roughly 6.42 per cent. Looking at the long-term investment returns, the stock has not performed well. In 3 & 5 years, the share price declined more than 60 per cent.

Speaking on DCB Bank share price outlook, the brokerage said, “Despite operating primarily in the self-employed segment, DCB has been able to manage the asset quality stress fairly well. The collections have held up well and with the trend likely to sustain, the secured nature of the bank’s restructured book hints at credit costs moderating going forward. The positive trends in terms of a strong recovery pipeline and moderation in slippages will aid in asset quality improvement. With asset quality stress and credit costs having peaked out, the balance sheet growth and improving return ratios should drive valuations for DCB.”

DCB Bank Financial Performance

Highlighting upon the key financial performance of DCB Bank, Axis Securities research report says, “The bank’s focus on maintaining asset quality and improving collections along with its cautious approach to growth slowed down its disbursements, and consequently growth. However, with macros normalizing, DCB picked up momentum in terms of both advances and deposits. NII growth remained tepid at 6 per cent YoY owing to higher slippages and excess liquidity weighing on yields. However, it was partially offset by a 46bps improvement in CoF owing to a benign interest rate environment. Thus, NIMs remained largely stable at 3.56 per cent in FY22, which were further supported by higher recoveries in Q4FY22. While fee income growth remained healthy at 22 per cent YoY, lower treasury income dented non-interest income which remained flattish YoY.”

Asset Quality

The brokerage note said that the COVID 2.0 disruptions added to the asset quality stress resulting in slippages from the already stressed asset pool. The restructured pool also inched up to 6.8 per cent in Q2FY22 from 4.1 per cent in FY21 despite DCB being selective in restructuring loans. However, the restructured pool is largely secured (98+ per cent) and collections have held up well so far. The pick-up in the economic activities improved collections. This coupled with better recoveries along with moderation in slippages resulted in the asset quality improvement. During the year, while slippages from the gold portfolio were higher, the bank remains confident of recovery in that portfolio by way of auction/sale of collateral, thereby easing the stress on the asset quality. Thus, despite multiple headwinds, GNPA remained at a manageable level of 4.3 per cent vs. 4.1 per cent in FY21.

On the suggestion to positional investors in regard to DCB Bank shares, 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 tips by 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 decisions.

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Source: News18