DCB Bank recorded its highest quarterly profit in Q1-FY27, driven by margin expansion and lower credit costs. The brokerage reaffirms its buy rating with a ₹216 target.
Alpha Score of 67 reflects moderate overall profile with strong momentum, strong value, weak quality, moderate sentiment.
DCB Bank delivered its strongest quarterly profit on record in the three months through June, according to financial statements released by the lender. The brokerage that covers the stock kept its buy rating intact, setting a target price of ₹216, which values the bank at 0.9 times its estimated book value for the fiscal year ending March 2028.
The bank's net advances rose 17.1% from a year earlier to ₹59,951 crore, led by mortgages and gold loans along with its agri and inclusive banking segment. Deposits climbed 20.1% to ₹74,482 crore. The net interest margin expanded 15 basis points to 3.35%, while core fee income surged 31% to ₹175 crore. The brokerage credited lower funding costs and improved operating efficiency for the profit jump.
Asset quality held steady. Gross non-performing loans stood at 2.43%, net NPAs at 0.84%. The provision coverage ratio reached 79.8%, and credit costs fell to 26 basis points. The bank's capital adequacy ratio was 17.03%, providing a cushion for growth, the brokerage noted.
Management told analysts it expects the net interest margin to improve further from the second quarter as higher-yielding mortgages and agricultural loans take a larger share of new lending. The cost of deposits should decline by about 7 to 8 basis points per quarter, slower than the 14 bps drop recorded in Q1, management said.
Operating efficiency hit a record low. The cost-to-average assets ratio fell to 2.42%, producing a return on assets of 0.96% and a return on equity of 13.61%. Management guided for a cost-to-average assets ratio between 2.50% and 2.60% and a cost-to-income ratio of 60% or lower.
On asset quality, management targets gross NPAs below 2.50% and net NPAs below 1.00%, with credit costs of 45 to 55 basis points of average assets. The brokerage's target of ₹216 implies the bank can sustain its improved profitability while maintaining a strong capital base.
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