Buy This Small Cap Bank Stock For Over 50% Return

The DCB Bank share price has been in the base building phase since early June 2022 and has not performed well. Shares of DCB Bank closed on Wednesday at Rs 73.75/share. It was opened at Rs 76,885/share. However, Axis Securities recently released a report on DCB Bank, in which the brokerage suggested investors buy the shares of the company for a target price of Rs 115/share. The brokerage is bullish on DCB Bank and expects around 50% gains over the next 12-18 months. DCB exited FY22 with a strong recovery pipeline and moderate slippages. This portends a strong improvement in asset quality going forward, as well as promising credit growth prospects.

Share price history

On Wednesday, shares of DCB Bank were trading around Rs 75, which means the brokerage is expecting a rise of around 55% in this bank certificate. Bank stocks have fallen more than 20% in the past year. It has given 10.35% negative feedback in the last month. However, within 3 months of investing, the stock price increased by around 6.42%. In terms of long-term investment returns, the stock has not performed well. In 3 and 5 years, the share price fell by more than 60%.

Speaking on DCB Bank’s share price outlook, the brokerage said: “Despite operating primarily in the self-employed segment, DCB has been able to manage quality stress quite well. actives. Inflows held up well and with the trend set to continue, the secure nature of the bank’s restructured portfolio suggests moderation in credit costs in the future. Positive trends in terms of a strong recovery pipeline and moderating slippages will help improve asset quality. With asset quality tensions and credit costs peaking, balance sheet growth and improving yield ratios should boost DCB’s valuations.

Financial performance of DCB Bank

Highlighting DCB Bank’s key financial performance, Axis Securities’ research report states, “The bank’s focus on maintaining asset quality and improving recoveries, as well as its cautious approach to growth , have slowed down its disbursements and, consequently, its growth. However, with the normalization of macros, DCB has regained momentum in terms of advances and deposits. NII growth remained subdued at 6% year-on-year due to higher slippages and excess liquidity weighing on yields. However, it was partially offset by a 46 basis point improvement in CoF due to a favorable interest rate environment. Thus, NIMs remained broadly flat at 3.56% in FY22, which was further supported by higher recoveries in Q4FY22. While fee income growth remained healthy at 22% year-on-year, lower treasury income weighed on non-interest income, which remained stable year-on-year.

Asset quality

The brokerage note indicates that the COVID 2.0 disruptions have added stress on asset quality, leading to slippages in the already stressed asset pool. The restructured pool also increased slightly to 6.8% in Q2FY22 from 4.1% in FY21, despite DCB’s selectivity in restructuring loans. However, the restructured pool is largely secure (over 98%) and the collections have held up well so far. The resumption of economic activities has improved collections. This, coupled with better recoveries and moderating slippages, has resulted in improved asset quality. Over the course of the year, while gold portfolio slippages were higher, the bank remains confident that this portfolio will recover through auctions/collateral sales, easing pressure on asset quality . So, despite multiple headwinds, the GNPA remained at a manageable 4.3% versus 4.1% in FY21.

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

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

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