Balance Sheet Growth Outpaces Industry (Image Credits: Pixabay)
DCB Bank delivered a standout fiscal fourth quarter, where net slippages flipped negative for the first time in recent memory, signaling a decisive improvement in its lending portfolio. This performance, coupled with robust balance sheet expansion, led Anand Rathi to uphold its buy recommendation with a 12-month target price of Rs 272.[1][2] Shares traded around Rs 190-193 at the time of the report, implying substantial upside potential for investors.[3]
Balance Sheet Growth Outpaces Industry
The lender posted deposit growth of 20.9 percent year-on-year in Q4FY26, surpassing broader system trends. Loan advances expanded by 17.6 percent over the same period, driven by segments like gold loans, which surged 72.9 percent, corporate lending at 54.7 percent, and agriculture at 19.6 percent.[1] This momentum improved the loan-to-deposit ratio by 84 basis points quarter-on-quarter.
Net interest margins rose 12 basis points sequentially to 3.39 percent, thanks to a 4 basis point drop in cost of funds while yields held steady. Fee income climbed 23 percent year-on-year, boosted by third-party products, forex, and trade finance. Operating expenses increased 11.3 percent but trailed overall business growth, contributing to core operating profit growth of 27.5 percent year-on-year and 13 percent quarter-on-quarter.
Asset Quality Marks Turning Point
Headline asset quality strengthened markedly. Net slippages shifted to negative territory at minus 21 basis points, compared with 45 basis points in the prior quarter. Gross slippages excluding gold loans fell to 1.5 percent, reflecting broad-based gains across portfolios.[2]
The provision coverage ratio, excluding write-offs, advanced about 404 basis points quarter-on-quarter to 64.3 percent. Gross non-performing assets stood at 2.2 percent, with net NPAs at 0.8 percent. The standard restructured book shrank 17.6 percent year-on-year to Rs 7.8 billion, or 1.3 percent of loans. Collections improved notably in housing loans, loan against property, and commercial vehicle segments.[1]
Projections Signal Sustained Profitability
Management guided for 18-20 percent loan growth in FY27, emphasizing mortgages, MSMEs, and commercial vehicles, with co-lending aligned to overall credit expansion. Anand Rathi anticipates net interest income rising 17 percent in FY27 and 17.6 percent in FY28.
| Key Estimates | FY27e (Rs mn) | FY28e (Rs mn) |
|---|---|---|
| NII | 28,735 | 33,805 |
| PPoP | 15,855 | 19,278 |
| PAT | 9,168 | 11,071 |
| EPS (Rs) | 28.5 | 34.4 |
Pre-provision operating profit should grow 22.4 percent in FY27 and 21.6 percent the following year. Return on assets holds at 0.9 percent for FY26 before edging to 1.0 percent, while return on equity climbs from 12.0 percent to 13.2 percent and 14.0 percent over FY27 and FY28. Net slippages remain contained below 50 basis points near-term.[1]
Valuation Supports Optimism with Measured Risks
Anand Rathi derived the Rs 272 target using a 1.1 times FY28 estimated price-to-adjusted book value multiple. “We maintain BUY rating on DCB Bank with a 12-month TP of Rs 272, valuing it at 1.1x FY28e P/ABV,” the firm stated in its April 27 report.[1] This approach factors in stable margins, ongoing fee momentum, and controlled credit costs.
Potential headwinds include slower-than-expected loan expansion or renewed stress in the mortgage portfolio. The brokerage has consistently rated the stock a buy since May 2021, progressively raising targets amid improving fundamentals.[1]
DCB Bank’s trajectory underscores the resilience of well-managed private banks in India’s evolving credit landscape. Investors may weigh this outlook against macroeconomic shifts, but the Q4 results position the lender for meaningful earnings acceleration.
