Most Analysts Downgrade DCB Bank After Weak Q1 Results
Here’s what the brokerages have to say about DCB Bank after its June quarter results.
Most analysts downgraded their investment recommendation for DCB Bank Ltd. on account of its poor operational performance and weaker asset quality due to higher slippages from commercial vehicle and agri-based loans in the June quarter.
The bank’s slippages stood at 2.5 percent on an annualised basis in the three-month period. That, according to Edelweiss, compares with a run rate of about 2 percent over the last six quarters. Slippages—fresh accretion of bad loans in a year—worth Rs 35-40 crore came from five accounts, the brokerage said in a report highlighting the key takeaways from the lender’s post-earnings conference call with analysts. Of these, it said the management expects to recover or upgrade two accounts in the next couple of quarters.
DCB Bank shares tumbled as much as 14 percent—the most since November 2016—as the lender missed estimates. The stock is trading at a price-to-book value of 1.9 times its FY20 estimates, according to Bloomberg data.
Here’s what brokerages have to say about DCB Bank Q1 Results:
Motilal Oswal
- Downgrades to ‘Neutral’ and cuts target price by 6 percent to Rs 225.
- Weak operating performance, growth outlook uncertain.
- Numbers below estimates on lower fee income, margin pressure and muted loan growth.
- Management guided for continued pressure on margins over the next two quarters.
- Increase in funding cost from fixed rate refinancing taken in the past will put pressure on margins.
- Expects loan growth to decelerate to 17 percent in FY20 compared with an average 22 percent over FY15-19.
- Cuts FY20/21 Profit After Tax estimate by 12/15 percent.
Nirmal Bang
- Downgrades to ‘Accumulate’ on slower growth, margin pressure and tepid core fee income.
- Lowers target price to Rs 256 from Rs 278 and values the stock at 1.8 times FY21 estimated price/book value.
- DCB Bank Q1 Results marred by one-offs.
- Loan growth lower mainly on account of slower corporate lending.
Kotak Institutional Equities
- Downgrades to ‘Add’ from ‘Buy’ and lower fair value to Rs 250 from Rs 230.
- Downgrades due to slowdown in business growth, coupled with faster-than expected rise in valuation in recent months.
- Expects correction in valuation.
- Overall performance on the weaker side.
- Management prefers slow growth approach than risk the balance sheet to any untoward stress.
- Net interest margin recovery should be underway in the next couple of quarters.
Haitong Securities
- Maintains ‘Buy’ and kept target unchanged at Rs 280 apiece
- But cut EPS forecast by 2 percent for FY20; maintained estimates for FY21.
- Bank remains cautious in corporate lending where its book shrunk by 13 percent.
- Overall business was supported by 19 percent year-on-year growth in non-corporate segment.
- Expects growth to pick up in the second half of FY20 to make up for the weak growth in June quarter.
Edelweiss
- Maintains ‘Hold’ with a target of Rs 219.
- Productivity improvement is critical to gain traction in profitability.
- Net interest margin continues to be under pressure.
- Stock fairly valued at 2 times its FY21 estimated adjusted book value for return-on-equity of 14 percent.