DCB Bank: MOSL upgraded this private bank to ‘buy’, sees over 23% upside – 5 key reasons why

livemint.com:

DCB Bank to ‘buy’ from ‘neutral’ earlier."We had downgraded our rating on DCB Bank to Neutral in July 2019 (stock price at ₹239) amid weaker operating performance and an uncertain growth/asset quality outlook. However, with a recovery in loan growth and anticipated improvements in operating leverage, we estimate a 21 percent earnings CAGR over FY24-26E.

We, thus, find the current valuations at 0.7x FY26E ABV attractive and accordingly upgrade our rating to BUY from Neutral, with a revised TP of ₹175 (0.9x FY26E ABV)," it said.The above-mentioned target price implies an over 23 percent upside in the private sector lender.The brokerage noted that DCB Bank has seen a healthy recovery in loan growth over the past two years after reporting tepid trends over FY20-22. Moreover, the lender has maintained NIMs (net interest margins) within a healthy range of 3.6-4 percent, aided by a granular liability profile, limited reliance on bulk deposits and an improving asset mix as the bank has strategically reduced the mix of low-margin corporate loans, it observed.While OPEX (operating expense) has been high owing to investments in business, MOSL expects operating leverage to kick in, pushing RoA towards 1 percent.

It believes the C/I ratio has broadly peaked at 64 percent in FY24 and expects it to moderate to 60 percent by FY26E. MOSL also forecasts a healthy 19 percent CAGR in revenue over FY24-26E amid stable margins and steady loan growth.It estimates RoA/RoE to reach 1 percent/14 percent by FY26 (FY24 RoA: 0.9 percent).DCB Bank stock has gained 21 percent in the last 1 year and around 7 percent in 2024 YTD.

It jumped almost 11 percent in June after an 8.3 percent fall in May. Before that, it rallied 17 percent in April, shed 6.6