HDFC Securities sees a 45% increase in this banking stock. Should I buy?

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DCB Bank share price is in a consolidation phase after hitting a 52-week high 106 on NSE in November 2021. It showed signs of rising in April 2022 after hitting a 52-week low of 67.85 at the end of March 2022. However, the stock still came under selling pressure in June 2022 and is on the verge of breaking its 52-week low reached in March. However, bank stock has rebounded from its recent lows and DCB stock price today is around 86 levels each. HDFC Securities estimates that the title could go up to 2126 levels each in the long term, offering a return of approximately 45% to its shareholders.

Highlighting the fundamentals likely to drive DCB Bank’s share price, the report from HDFC Securities states that “DCB Bank’s earnings were significantly above our estimates, largely due to strong loan growth traction. (+17% YoY) and lower credit costs (50 basis points – annualized While gross slippages climbed to around 8.3%, driven by gold loans and KCC’s portfolio (Q4FY22: 5.5%), healthy upgrades/recoveries led to a marginal 10 bps sequential improvement in GNPA, to 4.2%.”

“The stress pool continues to remain sticky (NNPA + restructured portfolio at around 8% of loans); however, management reiterated that credit costs will remain within range (close to 50-60 basis points) due to improved collection efficiency and a granular and secured loan portfolio (around 95%) With a stubborn stress pool and high opex intensity to drive business throughput, we see limited leverage term for reflation in yield ratios,” the brokerage added.

On its suggestion to positional investors regarding DCB Bank’s share price, HDFC Securities’ report states: “We are reducing our earnings estimates for FY23/24 by 7%/5% to account for NIM moderation and maintain the ADD with a revised TP of 126.”

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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