This Small Cap Stock Has Slumped 9% In 5 Days: Why Analyst Sees Over 115% Upside

Shares of DCB Bank have fallen around 9% in the past five sessions, but analysts at Keynote Capitals see the stock turning things around.

The DCB Bank Analyst: Devin Joshi for Keynote Capitals initiated coverage on the stock with a “buy” rating and a target price of ₹250. The target indicates an around 115% upside from the stock’s last closing price of ₹116.65.

The DCB Bank Thesis: Joshi noted that the lender had been experiencing significant loan book growth since FY11, with its loan book nearly doubling every three years, achieving an impressive 22% compound annual growth rate (CAGR) from FY11 to FY20. However, the emergence of the COVID-19 pandemic in 2021 disrupted the economy, leading to challenges for the bank due to a market slowdown, the brokerage remarked.

In FY22, as the economy began to normalize, the management of DCB Bank set ambitious goals to double its loan book over the next three to four years. As per the research note, to achieve this, the lender has focused on capacity building and strengthening teams across various verticals to support their growth aspirations.

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The analysts also highlighted the sectoral data from the Reserve Bank of India (RBI) which indicates a healthy growth momentum. The brokerage expects that DCB’s loan book will expand by 20-22%. This growth is expected to be driven by several factors, including increased staffing, branch expansion, the expansion of co-lending partnerships, and the effective use of technology to support their lending activities.

Joshi also expects the bank’s operating cost to reduce going forward. In the past two years, the Bank faced cost escalations attributed to its proactive team expansion, branch network growth, and reduced other income due to regulatory adjustments. The analysts expect improvement in the “cost-to-income ratio as management guided lower growth in operating cost compared to income, which will result in operating
leverage kicking in,” the research note said.

Price Action: DCB Bank’s share price was down 0.90% to trade at ₹115.60 in the afternoon hours of trading on Wednesday.

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Posted In: Analyst ColorEquitiesPrice TargetInitiationMarketsAnalyst RatingsDCB BankKeynote Capitals