Stock Advice | Purchase This Small-Cap Banking Stock For Over 50% Returns

Stock Advice | Purchase This Small-Cap Banking Stock For Over 50% Returns

Since the beginning of June 2022, the share price of DCB Bank has been in the base-building phase and has not been performing well. On Wednesday, the shares of DCB Bank closed at Rs 73.75 each. It started at Rs. 76.885 per share. Axis Securities, on the other hand, recently released a report on DCB Bank in which the brokerage advised investors to purchase the company’s shares at a target price of Rs 115 a share. The firm has a strong outlook for the DCB Bank and anticipates increases of about 50% over the next 12 to 18 months. With a robust recovery pipeline and lowering slippages, DCB ended FY22. This suggests that asset quality will continue to improve significantly going the future, along with bright prospects for credit expansion.

Share Price History

Shares of DCB Bank were trading around Rs. 75 on Wednesday, which indicates that the brokerage expects this banking scrip to increase by about 55%. Over the past year, shares of banking companies have decreased by more than 20%. It has generated 10.35% negative returns over the past month. Nevertheless, after three months of investment, the share price increased by about 6.42 percent. When examining investment returns over the long run, the stock has not done well. The share price dropped more than 60% in 3 and 5 years.

The brokerage is anticipating an increase of almost 55% in the DCB Bank share price as of Wednesday’s closing price of roughly Rs 75. The shares of banking companies have decreased by more than 20% during the past year. In the past month, there have been 10.35% negative returns. But the share price increased by about 6.42 percent after three months of investing. The stock hasn’t performed well when compared to long-term investment returns. The share price dropped by more than 60% during 3 and 5 years.

DCB Bank Financial Performance

Axis Securities’ research study highlights DCB Bank’s major financial performance and notes that the bank’s emphasis on maintaining asset quality and boosting collections, together with its cautious approach to growth, slowed down its disbursements and, as a result, growth. However, as macroeconomic conditions began to normalize, DCB experienced an increase in both advances and deposits. Due to increased slippages and abundant liquidity weighing on rates, NII growth remained modest at 6% YoY. However, a 46bps gain in CoF brought about by a favorable interest rate environment somewhat countered it. Thus,

As a result of increased recoveries in Q4FY22, NIMs were mostly steady at 3.56 percent in FY22. While the growth in fee income was still strong at 22% YoY, reduced treasury income hurt non-interest income, which was flat YoY.

Asset Quality

According to the brokerage report, the COVID 2.0 disruptions increased the burden on asset quality and caused slippages from the already strained asset pool. Despite DCB being selective in its loan restructuring, the restructured pool also increased slightly, reaching 6.8% in Q2 FY22 from 4.1% in FY21. Nevertheless, the reorganized pool is largely secured (98+%) and collections have so far held up effectively. The increase in economic activity increased receipts. The asset quality improved as a result of this, with better recoveries, and a reduction in slippages. While slippages from the gold portfolio were greater throughout the year, the bank is still convinced that the portfolio will recover through the sale or auction of collateral, reducing the pressure on the asset quality. Consequently, GNPA remained at a tolerable level of 4.3 percent vs. 4.1 percent in FY21, despite numerous challenges.

Axis Securities stated, “We keep our estimations and maintain our BUY recommendation on the company with a target price of Rs 115/share” in response to the advice given to positional investors regarding DCB Bank shares.

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