DCB Bank hits 52-week high post March quarter earnings

The stock hit a 52-week high of Rs 211, up 4 per cent on the BSE in an otherwise weak market on Monday, trading close to its all-time high level of Rs 213 hit on June 16, 2017.

DCB Bank shares hit a 52-week high of Rs 211, up 4 per cent, on the BSE, in an otherwise weak market on Monday, after the private sector lender reported healthy earnings for the last quarter of fiscal 2018-19 (Q4FY19).

The stock was trading close to its all-time high level of Rs 213 apiece hit on June 16, 2017, on the BSE. In comparison, the benchmark S&P BSE Sensex was down 0.67 per cent at 38,878 points at 10:49 am. The trading volumes on the counter has more than doubled with a total of 6.35 million shares exchanging hands on the BSE and NSE so far.

DCB Bank’s profit after tax rose 50 per cent to Rs 96 crore in Q4FY19, on the back of higher net interest income (NII). The bank’s net profit stood at Rs 64 crore for the same period last year. NII grew 16 per cent at Rs 99 crore against Rs 85 crore in the corresponding quarter of the previous fiscal.

The bank’s asset quality improved sequentially, as gross and net non-performing assets (NPAs) dipped around 1 and 6 per cent QoQ, respectively. Net interest margins (NIMs) were almost flat at 3.8 per cent, though compressed 38 bps YoY. Management is confident of "retaining NIMs at current levels".

"The bank fulfilled its almost prophetic guidance of 1 per cent on return on average assets (RoAA) despite macro challenges like demonetization and GST. While loan growth disappointed in Q4FY19 (16 per cent), stable margins, improving op-lev and asset quality impressed," analysts at HDFC Securities said.

The brokerage firm, in its results preview, had said that with its core growth engine intact, DCB Bank "has the potential to grow at faster rates.".

"(We anticipate) upgraded earnings by around 12/16 per cent for FY20/21E. A significant improvement in resulting efficiencies (anticipated) drives up our RoAA estimate to around 1.2 per cent by FY21E," it had said with ‘buy’ rating on the stock and target price of Rs 228 per share.

"The bank has chosen to create a niche in self-employed segment, which has relatively limited the competition, enabling it to improve its NIMs significantly. With branch network already doubled over last three years, management is targeting strong improvement in operational efficiency," analysts at IDBI Capital said, adding "despite operating in a vulnerable self-employed segment, strong risk management practice followed by the bank has helped it maintain the asset quality at comfortable levels".

The brokerage firm retained ‘buy’ rating and increased the target price to Rs 250 from Rs 220, valuing the stock at 2.0x (15 per cent premium to mean) P/ABV FY21.